Asian Open US indices lower following soft data on FOMC eve

The white-knuckle roller coaster ride that is this week’s markets continues today. Equities rallied across the board, with European indices rising 3+% and US bourses tracking about 1% higher as of writing. Yields in the US, UK, Germany, and Japan are all ticking higher today, showing modest selling of safe-haven bonds across the globe (this same sentiment is reflected in gold’s lackluster trade today). Meanwhile, oil prices have exploded higher today, with the benchmark WTI contract exploding higher by over three points, or nearly 9%, on the day.

So with oil and stocks surging and bonds falling, surely we’d expect the dollar to be on the back foot as well? Well, no; in fact, the dollar index is actually trading up about 0.5% on the day, after a big gain yesterday as well. In many ways, today’s (and yesterday’s) price action is merely unwinding some of the panic-driven moves we saw earlier this week. In that context, it’s not surprising to see the dollar rally sharply in an attempt to dig itself out of its recent hole.

Taking a step back reveals another reason why the dollar has seen a short-term bounce: the pair found a floor directly at previous support in the 93.50-94.00 range. This zone has consistently marked near-term bottoms in the index since early February, so it’s not surprising that bulls stepped in to defend that level once again. Looking beyond the price action itself, there were deep oversold readings in both the Bollinger Bands (price below the lower 2sd band) and RSI indicator (below 30). Given the previous support level and clear oversold readings, the recent rally in the greenback can be chalked up to nothing more than an oversold bounce thus far.

So what are the key levels to watch in the dollar index (and by extension, EUR/USD) moving forward? To the topside, the key level to watch will be in the 98.00-98.50 zone, which has served as resistance for the past four months. Only if price can break that key barrier will bulls feel comfortable declaring that the uptrend has resumed.

For now, the US dollar remains trapped in a sideways range against its major rivals as traders try to decipher the Fed’s intentions…and whether a rate hike would even be beneficial for the dollar.

Source: Stockcharts.com & City Index. Note that this chart does not yet reflect today’s price action; the dollar index is trading at 95.63 as of writing.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of StoneX Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor