The dollar maintains the dominance across the FX board having gotten psychological support from the hawkish FOMC. It’s expected to be another big week for the dollar as market participants look forward to Wednesday’s economic figures.
There is barely much to say about the dollar. The strength can be seen clearly and rightfully so, as the US recovers from the pandemic more quickly than the rest of the major economies. Businesses are back creating jobs, consumer demand pressurizes supply thus hiking inflation, significant wage growth in the Labor market and a very buoyant stock market is a big confidence boost for the US policymakers. In the last FOMC policy statement, the Fed agreed on a $15 billion/ month taper. At this pace, Covid stimulus will be absorbed and the bank will start discussing rate hike toward the end of the first half of 2022.
However, recent reports suggest rate hike might come earlier as some Fed officials are already suggesting a taper rate increase to $30 billion/month. The discussion for taper acceleration might start in December according to Fed Vice Chair Clarida. With all these hawkish comments, it’s normal to think the dollar will gain more and gain the advantage over other major currencies. The status quo should remain for much of the first half of this week before Wednesday’s US PCE, GDP and Fomc. If all these beat estimates, the pace of the dollar rally is expected to increase. Let’s take a look at the technical price action build-up of the dollar index.
Dollar Index Technical Analysis
After the end of the nearly 4-weeks bearish correction at 93.28 (ended late October), the yearly bullish trend broke new highs and pushed the dollar to its highest since July 2020. The bullish run looks impulsive and could attract more bids toward 97 especially if we have hawkish FOMC minutes on Wednesday together with favorable GDP and CPE numbers. Technically, the index is between 96.24 and 95.15. The next near-term direction could depend on whether we get a breakout of 96.24 or a breakdown below 95.51. Traders who trade major FX should therefore monitor the price action development on the dollar index.
EURUSD Technical Analysis
Since 1.1693, EURUSD has maintained a bearish run. Of course, the dollar quick recovery posed pressure. Aside from the dollar pressure, the Central Bank divergence has been of disservice to the pair together with new Covid outbreaks in Europe. The Eurozone PMI data on Tuesday will give clues to how badly the Eurozone economy has been hurt. EURUSD looks very much likely to touch 1.11 or 1.115 later in the year especially if the current psychological support at 1.125 gives way.
GBPUSD Technical Analysis
In the long-term, GBPUSD is close to completing a bullish diagonal which could show a further lack of support for the bears. However, the current dollar bull could still force the currency to 1.33 as the chart above shows. Just like the US, Britain has also enjoyed a quick recovery and the British Pound was bullish last week but eventually surrendered to the dollar strength on Friday.
As the chart shows, a bearish flag completed at 1.3511 and the price is completing a sub-flag which also shows support for the bears. The current rally should stay below 1.35 if the bears will push lower. A break below 1.34-1.3395 will be enough for a further decline to 1.33-1.325 before the bulls reload.
USDJPY Technical Analysis
The bullish trend since August 4 has continued as the dollar remains the most-preferred safe-haven currency. We will most likely see further rally if the price breaks above 114.5. The current sip seems to have ended t 113.55 and if the price stays above with an impulse break above 114.5, then this bullish momentum should build toward 116-117 in the medium-term.