Dollar Index outlook: Markets digest news from US election /Fed policy outlook

Dollar Index

The Dollar Index is in a sideways mode on Friday morning after Thursday’s drop almost fully reversed post-election rally on Wednesday.

Near-term action ranging above the base of thick hourly Ichimoku cloud and expected to remain constructive above trendline support (103.72) and 200DMA (103.64).

The dollar stabilizes after volatile conditions from release of US election results and Fed rate decision, keeping overall bullish structure and on track for the sixth consecutive bullish weekly close.

Profit taking from post-election rally pushed the price lower, but relatively hawkish Fed rate cut is expected to further underpin the US currency.

Fed cut rates by 25 basis points as widely expected and Chair Powell signaled in his post-policy meeting speech that the central bank is starting to assess the new economic landscape after Donald Trump enters the White House.

Trump’s program will be mainly focused on the economy and faster growth is likely to fuel inflation that will require a review of Fed’s current stance on monetary policy.

Initial projections signal that fewer rate cuts and earlier than expected end of policy easing cycle would be likely scenario when plans of new administration start to materialize which would be overall supportive for the dollar in the near future.

Technical picture remains bullish on daily chart, but loss of positive momentum, with long upper shadow on weekly candlestick, overbought conditions on weekly chart and likely failure to register weekly close above cracked pivotal Fibo barrier at 105.13 (38.2% retracement of 114.72/99.20 downtrend) warn that bulls may be running out of steam.

Prolonged consolidation above trendline / 200DMA supports is seen as ideal scenario, in which bulls will consolidate and regain traction for fresh push higher, with sustained break above 105.13/33 pivots (Fibo / new four-month peak) to focus targets at 105.78 (June 28 high), 106.36 (May 1) and 106.90 (50% retracement).

Alternative scenario sees risk of deeper correction on loss of key supports at 103.72/64 (trendline / 200DMA) and 103.24 (Nov 5 higher low / Fibo 38.2% of 99.84/105.33 rally).

Res: 104.54; 104.83; 105.33; 105.87.
Sup: 104.05; 103.72; 103.64; 103.24.