USD Weakness Pauses After FOMC Rate Hike, Clear Resistance in Focus


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Talking Points:

The Federal Open Market Committee went forward with the priced-in rate hike on Wednesday. What likely surprised markets most was that the Fed looked through the recent weakness in economic data to keep the terminal rate expected at 3% per the Fed’s Dot Plot. Aggressive price action was not seen following the Fed’s decision to hike. USD initially dropped on the headlines, which added to the morning’s losses after a miss in retail sales and inflation data.

A bit more concerning development through the week is the falling yields, which could indicate that further USD weakness is on the horizon. After Wednesday morning’s weak data print, the Citi Economic Surprise Index for the US Economy was at its lowest levels since May 2015, which is why many were surprised the Fed stood pat and kept their forecasts for future rate hikes firm. However, it is worth noting that the Fed could be looking to get the rate as far from zero as possible as a flattening yield curve often signals upcoming economic slowdown. Should that eventually come to pass, the Fed would likely want to be able to cut as much as possible to re-stimulate the economy.

Looking at the chart, there is a clear zone of resistance that prevents me from changing the bearish outlook on DXY. The recent lower highs of 97.53/78 acts as resistance and an inability for the price to strengthen above this zone on a closing basis would cause me to anticipate and an eventual move to the downside extension targets of 95.85-94.83 at which point, we would move down the resistance point that would turn me from bearish to neutral.

Also, when looking at IG Client Sentiment, EUR strength is expected to continue per sentiment showing that retail traders continue to cut back on long exposure and grow net-short exposure.

If you would be interested in seeing how retail tradersare bettingin key markets, see IG Client Sentiment here!

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DXY trading below 97.53/78 keeps focus on downside extension targets @ 95.85-94.83

USD Weakness Pauses After FOMC Rate Hike, Clear Resistance in Focus

Chart Created by Tyler Yell, CMT

IG Client Sentiment Highlight: EUR (57.6% of DXY) Sentiment favors further upside

USD Weakness Pauses After FOMC Rate Hike, Clear Resistance in Focus

EURUSD: Retail trader data shows 22.5% of traders are net-long with the ratio of traders short to long at 3.45 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.05975; price has moved 6.4% higher since then. The number of traders net-long is 26.4% lower than yesterday and 25.5% lower from last week, while the number of traders net-short is 2.4% higher than yesterday and 5.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bullish contrarian trading bias. (Emphasis mine)

Shorter-Term DXY Technical Levels: Wednesday, June 14, 2017

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

USD Weakness Pauses After FOMC Rate Hike, Clear Resistance in Focus

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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