Technical Analysis: U.S. Dollar in Free Fall, But…

The U.S. dollar looks like it caught the flu.

And apparently, it would appear that bullish bets on a higher U.S. dollar, sparked by Trump’s win and his pledge on tax cuts, deregulation and federal spending programs has managed to unwind.

Shortly after the Federal Reserve lifted its fund rate by another quarter point to a new range of 0.75% and 1% with the promise of two more hikes this year, the dollar slumped to a three-month low of 100.51.  What the U.S. dollar needed to hear was that we’d see even more than two this year, though.

The Technical Argument for the Dollar

In spite of this recent drop, it is always mindful to keep an eye on at key levels of support and resistance. While the dollar has dropped recently, it is testing a support level at 99.61 which held in December and in January. If this level of support holds, then the dollar could move back to the upside.  If it is broken, the next level of support would be found at the 200 SMA or around 97.

 

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Just weeks after hitting a high of 103.58 the dollar sunk well under its 50-day moving average, and could be likely to test triple bottom support at 99.19. Should that fail to hold, the dollar could sink to 98.33 before long. At the moment, excessive weakness in the currency strongly suggests that could become reality.

Against the Yen, the U.S. dollar has lost about 1.56% and 1.5% against the Pound over the course of the last week. Against the Euro, it’s about 0.5% lower after the French presidential debate. 

The Fundamental Argument for the Dollar

There’s growing confidence that Le Pen will not be the next president of France followed the debate.  That news lifted the euro.

However, the setback in the U.S. dollar may only be temporary, according to some. 

In fact, John Higgins, an economist at Capital Economic noted, per Pound Sterling that, “The median projections of FOMC participants for the federal funds rate at the end of 2017 and 2018 were left unchanged from their levels in December. This appears to have been the cause of the dollar’s retreat, as some had expected them to be raised,”

Other analysts believe interest rates could move up quicker than expected, too, which could goose the U.S. dollar higher as well.  While the currency appears to be in free fall mode at the moment, it’s now becoming aggressively oversold. 

We can tell you that gold hasn’t had a tough time with the weakness, though.

Ever since the U.S. dollar pulled back the price of gold roared from a low of $1,194.50 to a recent high of $1,246.50.  It could retest double top resistance just under the 200-day moving average, near-term, as well.  Even silver rallied from $16.82, breaking above its 50-day moving average at $17.58.  We could see a test of $18 before long there, too.

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