The U.S. dollar rose to new highs in three weeks against a basket of six major currencies on Tuesday, February 14th, driven by more hawkish than expected remarks by Fed chairwoman, Janet Yellen, while presenting a testimony on monetary policy and economy conditions in the U.S. central bank’s semi-annual meeting. Almost the same speech would be held in Senate Financial Committee on Wednesday, although it is not expected to have the same sharp impact on markets. The dollar has held the gains so far.
The dollar has been trapped between the Federal Reserve’s outlook of rate hikes from one hand, and Trump’s planned policy of weaker dollar to aid the economy compete world powers, from the other hand.
Yellen said Tuesday that the economy is on track and it would be “unwise” to delay tightening, although, investors didn’t expect these hawkish signals from the Fed after weaker than expected average hourly earnings and the unemployment rate figures in January, published recently.
Apart from the fundamentals affecting the greenback, let’s have a look at the dollar’s chart to see whether or not this recent upward move is sustainable.
Below is the U.S. dollar’s daily chart from mid-2014 up to present. As it is obviously shown, a huge rally has been triggered from almost, 79.0x to above 100.0 x in less than a year. This sharp move retraced 38.2% afterwards to 92.35x, forming an ABC correction and gaining momentum to breach above the psychological level of 100.0x later on. The first target after the break up has been touched at around 103.90x, equivalent to 127.2 % of Fibonacci expansion from the so-called correction.
The index pared the gains afterwards, and headed below 100.0x level post the U.S. presidential election. The sharp penetration to the previous high is not actually a good sign for the dollar to advance to hit a new high above 104.0x, as the 61.8% of fibo retracement at around 102.0x still plays a resistive role on the way up.
The formation of MACD and OsMA oscillators also suggest another decline in action, but should be taken into account that the reverse signal has not been triggered yet. A close attention should be paid to 102.0x level. It is expected that a lot of investors would resume their bullish bets in case this level is breached properly, which leads to possibly a higher high at around 106.0x major mark (161.8% of fibbo expansion).
On the flipside, if the dollar fails to break and hold above 102.0x, another decline targeting 97.5x would not be a surprise, but in this scenario, penetration below a major supportive zone of 101.0x is required.