Over the past week, we’ve looked at the U.S. Dollar from a variety of angles. With the Greenback setting a fresh 7-month low just ahead of last week’s FOMC rate hike, bullish price action has begun to show after the Fed delivered a more-hawkish outlay than what markets were looking for. Whereas we’d previously heard the idea that the Fed may be looking to tighten through balance sheet reduction after one more hike, last week’s meeting showed that the Fed was looking at four hikes going out to the end of next year; and as Chair Yellen shared during the press conference, these hikes could take place along with the balance sheet reduction plan that the Fed had previously shared. This would be the Federal Reserve tightening the money supply on two fronts simultaneously.
It’s been a rough 2017 for the Greenback, so far. After running up to a fresh 14-year high on the second trading day of the New Year, the Dollar has put in a string of losses that’s seen as much as a -7.22% taken-out. On the chart below, we’re looking at the bearish channel that’s developed in DXY in 2017 after last year’s bullish top-side run.
Chart prepared by James Stanley
The consistency with this year’s bearish move in the Dollar has many looking for a deeper sell-off; and while this certainly may be in the cards, a bit of longer-term perspective can highlight how the Greenback is still rather elevated after the bullish run of 2014. On the chart below, we’re looking at DXY going back to the year 2000, and this helps to show how resistance had formed around the 61.8% Fibonacci retracement of the move after the 50% retracement had helped to set swing-low support on the night of the U.S. Presidential election.
Chart prepared by James Stanley
The election night spike-low came in right around the 50% retracement of that move, and as we came-in to the March rate hike from the Fed, which was largely expected and widely-telegraphed, DXY ran-up for a quick resistance check at the 61.8% retracement before peeling-lower after the Fed announced the move. Something happened in March that DXY and Dollar bulls did not like, and perhaps not coincidentally, this is around the time that the Fed started talking-up the prospect of balance sheet reduction. This rate hike in March triggered another three months of weakness in DXY as we walked into last week’s rate hike.
