US Dollar Index: Dollar under fresh pressure from less hawkish than expected Powell

US Dollar Index

The dollar index stabilized in early European trading on Thursday, after a gap lower opening and dip to two-week low, as less hawkish than expected remarks from Fed Chair Powell on Wednesday, soured the sentiment.

Powell signaled that the central bank is likely to slow the pace in policy tightening, following a series of jumbo hikes in recent meetings, but repeated that the Fed will continue to raise interest rates in attempts to put high inflation under control and push it towards 2% target.

He also pointed to necessary adjustment to new economic conditions as higher borrowing cost is expected to last for some time, due to slow reaction of inflation to the central bank’s measures and lower supply in labor market.

Fresh weakness cracked the upper boundary of strong support zone at 105.41/104.95 (defined by 200DMA and Fibo 38.2% of 89.15/114.72 rally) where larger bears continue to face headwinds.

Prevailing bearish tone from Powell’s remarks adds to negative daily technical studies (MA’s in bearish setup, RSI / stochastic heading south, partially countered by rising momentum, although the indicator is still in negative territory).

Stronger bearish signal comes from monthly chart, as the dollar index ended trading in November with a massive losses of nearly 5% (the biggest monthly fall since May 2009), forming reversal pattern, with the action being heavily weighed by large bearish monthly candle.

Near-term focus remains shifted to the downside, although the action may hold in extended consolidation before fresh push lower.

Clear break of pivotal 105.41/104.95 support zone, would open way for deeper correction of 89.15/114.72 uptrend and expose targets at 102.94 (55WMA) and 101.94 (50% retracement).

Near-term range should remain capped under pivotal resistances at 107.22 (20DMA) and 107.88 (Nov 21 high) to keep larger bears intact.

Res: 105.84; 106.40; 107.22; 107.88.
Sup: 105.15; 104.96; 104.49; 103.18.