This Sunday morning we have looked at the DXY in particular what we can expect next week.
- Selling continued and the expected bounce came at a later level than highlighted last week.
- Price dropped furiously below the Daily 200 SMA after the Federal Reserve statement before completely reversing the next day and settling at 96.55 close of play Friday. There is now no trend on the Daily chart.
- The FED move can be seen as exhaustion and some overreaction.
- Looking ahead:
- Dollar is seasonally weak till 28th
- Daily uptrend has now been broken.
- The path which price may take can be better illustrated by its main rival (volume wise) – the Euro (refer to EURUSD section). The dollar will obviously move in the opposite direction.
- Reviewing the fundamental background will help elucidate the future path of price.
- Looking at the levels Dollar and EURUSD were sitting at just before the Fed statement, market didn’t expect a rate hike and had already priced this in. You can even argue a cut was probably priced in. The move after the statement was just exhaustion as was confirmed by the complete reversal following day.
- What most people forget to analyse when they talk about the Fed statement or a dovish Fed plot, is to look at the other side of the coin. This would be the Euro which makes up the largest chunk of the Dollar index. Going into the last ECB statement, the guidance was that interest rates would be reviewed at September of this year. Following the release of the statement, this review is now pushed back till the end of the year and also, ECB will be introducing more TLTROs (Targeted longer-term refinancing operations). A very bearish signal.
- So the Fed may have taken a less hawkish stance but so have ECB and this is reflecting in the price action.
- Unless something drastically changes from both central banks, it is likely that EURUSD will remain in the 1.1200 – 1.1500 range till end of April at least (possibly even reach the Jan 2019 swing high), and then subsequently, we will probably see a further leg down in May which is Dollar’s seasonally strongest month.
- Referring to the chart, there is room for price to drop to 1.1235 – 1.1240 (confluence area of monthly pivot, 78.6 FIB and Feb 2019 swing low) before any sort of bounce. Following this, I’d expect to see a more consolidation pattern over the next few weeks (similar to the price action marked in blue box), before another strong move down in May.