DXY (US Dollar Index): Technical Outlook, Edition #26 (18/06/21)

Inflation hawks might be flying high after the FOMC's unexpected shift on monetary policy, but the far-reaching shockwaves have rippled across the financial markets. Let's examine the implications...

Fed Chair Powell reveals "inflation could be higher and more persistent than expected"

Did you miss our exclusive FOMC analysis? Check out Technical Outlook Edition #25 before reading further...

US Federal Reserve Chairman Jerome Powell has finally come clean and announced that "inflation could be higher and more persistent than expected". 

Powell's about-face on monetary policy underscored by his hawkish statement generated a shockwave, fuelled by the dot plot expectations of two interest rates hikes during 2023 - as opposed to his previously dovish outlook of unchanged rates until 2024. 

As a result, the US Dollar Currency Index ($DXY) shot up from 90.50 to 92.00 points and has been flirting with the .618 fib retracement zone and D1 200 MA (moving average).

Take a look at the chart below, where we've included the bullish and bearish forecasts for the Dollar Index.

$DXY, US Dollar Currency Index - Daily (D1)

At this point, our regular readers might now be thinking…

Is this the beginning of a multi-wave US Dollar rally? Or is this nothing more than just a squeeze against the bears who short (sell) USD more than any other asset in the markets currently? 

Remember, the DXY is negatively related to nearly every other asset traded in the financial markets… 

As the greenback (USD) strengthens, other assets weaken. 

One way we can interpret this is commodities, cryptocurrency, stocks, precious metals, and even other fiat currencies like the Australian Dollar (AUD) will suffer from price decay. 

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Q's Conclusion 

Patience is more than just a virtue; it can also protect your capital.

Remain vigilant for overtly aggressive dip-buying during tonight's European and US trading sessions, where the $DXY decisively rejects the .618 fib retracement level. 

It may be wise to reduce intended entry sizes and staggering orders until we confirm either a USD reversal or a short squeeze.

See you again for the next update.

- q

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