US dollar index remains elevated below key resistance ahead of Fed minutes
James Chen, CMT May 22, 2018 5:18 PM
One of the major market themes of the past few months has been the steep rise of the US dollar after it broke out in mid-April above its previous consolidation near multi-year lows.
One of the major market themes of the past few months has been the steep rise of the US dollar after it broke out in mid-April above its previous consolidation near multi-year lows. The rise of the dollar during this time has prompted the US dollar index, a benchmark measure of the dollar against a basket of other major currencies, to break out above several major resistance factors, including the key 91.00 level, the 200-day moving average, and the important 92.50-area. Most recently, on Monday, the USD index hit the 94.00 resistance area before retreating.
Helping to drive dollar strength in the past several weeks has been the continued rise of bond yields and interest rate expectations. The benchmark 10-year US Treasury yield has recently risen and remained elevated above the key 3.00% level, peaking last week around 3.12%, which marked its highest point since mid-2011. Wednesday brings the release of minutes from the Federal Reserve’s last FOMC meeting, in which the Fed kept interest rates unchanged. Most importantly, scrutiny of Wednesday’s Fed minutes will focus on wording changes and any hints or indications regarding a widely expected rate hike in June. Currently, markets are pricing-in a 95% probability of a June rate hike.
In the run-up to the Fed minutes release, the US dollar has pulled back from Monday’s 94.06 intraday high but remains supported on continuing strength in bond yields. A key level to watch on the US dollar index amid the Fed’s release of minutes is the noted 94.00 resistance level. Any hawkish interpretation of the minutes could prompt a breakout above that level, which could then open the way towards the 95.00 handle and above. To the downside, any dovish interpretation could prompt a pullback towards the 92.50 support area once again.
Disclaimer: 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. Before deciding to trade forex and commodity futures, 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 GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.