In yesterday’s article, we discussed the tenuous nature of the current recovery being seen in the U.S. Dollar. The Dollar came into the month of August extremely oversold, as July was brutal for the Greenback. A solid NFP report at the beginning of the month created a short-squeeze scenario as Dollar shorts hurriedly covered positions. A weak CPI report on the following Friday brought sellers back into the fray, but this time something was missing – and that was bearish drive as we approached those prior lows. As bears got shy near support, prices began to work-higher, solidifying a ‘higher-low’ in DXY as prices ran up to fresh two-week highs.
Yesterday’s FOMC minutes were not inspiring for USD-bulls. The Federal Reserve said that they anticipate starting balance sheet reduction ‘relatively soon’. Some market participants inferred that to mean September, but it’s impossible to determine if this is what the bank was actually implying. Also within the minutes, the Fed discussed worries around lagging inflation. The near-immediate response was another gust of USD-weakness after the Dollar came-off of those fresh two-week highs. But similar to what we saw last Friday, buyers showed-up to offer support at a ‘higher-low’. The chart below shows the U.S. Dollar’s response to yesterday’s FOMC minutes in red, with the most recent iteration of higher-low support in purple.
U.S. Dollar Hourly via ‘DXY’: Bearish Response to FOMC Minutes (in Red)
Chart prepared by James Stanley
When taken in consideration of the bigger picture setup in the U.S. Dollar, this makes for a bear flag formation. On the chart below, we’ve added a Fibonacci retracement to the bearish move in DXY that took place in July. From here, we can see where resistance is continuing to show around the 38.2% retracement of that move at 94.06.
U.S. Dollar via ‘DXY’ Four-Hour Chart: Bull Flag with Resistance at 38.2% Fib retracement
