The US Dollar Index (DXY) has been on a strong run since early September, leading up to last week’s FOMC statement. Although Powell and his gang appeared to be on the more hawkish side, the DXY had sold out on what appeared to be a “Buy the Rumor, Sell the Fact” type of trade. However, as the markets began to decipher the language over the next few days, traders decided that Powell was more hawkish at the press conference than expected, using phrases such as “the reduction could end by here. the middle of next year “and” Many FOMC members believe another substantial test of progress on the job test has been met. MY OWN VISION IS THAT IT’S ALL BUT REACHED. Volatility ensued. towards the close that day, but the bulls in the DXY continued to buy the declines in the US dollar going forward.
On Thursday, the DXY closed at the highest level in 2021, reaching new heights since early November 2020! The US dollar hit a 2021 low in early January at 89.20 and hit a March 31 high at 93.44. The pair pulled back and tried to retest January lows, hitting 89.53. This created a descending (bullish) wedge and the price moved higher from the wedge. On August 20, the DXY hit a new annual high at 93.72! Today, the DXY hit new highs for the year again, reaching as high as 93.89! And there still seems to be plenty of room to go. The next resistance level is not until the November 2020 highs at 94.285 and then an ascending trendline tracing back to April 2011 near 94.40. Above, there are the September 2020 highs at 94.74!
As the Euro represents 57% of the US Dollar index, one would expect the EUR / USD to move in the opposite direction to the DXY. EUR / USD hit a new year-on-year low today at 1.1656, knocking out August 20 lows at 1.1664. If EUR / USD is to continue lower, there is confluence of support at November 4, 2020 lows and 127.2% Fibonacci retracement from August 20 lows to September 3 highs, between 1.1597 and 1.1602. Below is the 161.8% Fibonacci extension of the same period at 1.1512 and the horizontal support going back to March 2020 at 1.1495. The resistance above the daily period is at the confluence of the horizontal resistance and the 50 day moving average between 1.1770 and 1.1778. Above there is a long term ascending trendline from the September 3 highs at 1.1908.