Will the USD uptrend carry over into the New Year?

<p>It’s been an absolute whirlwind of a week for traders of all stripes, but volatility appears (knock on wood) set to die down as we […]</p>

It’s been an absolute whirlwind of a week for traders of all stripes, but volatility appears (knock on wood) set to die down as we head into the traditionally slow last two weeks of the year. Of course, the biggest development was the Fed’s historic decision to raise interest rates for the first time in nearly a decade, a decision which has impacted all markets, but perhaps none more than the US dollar.

While everyone had already anticipated that the central bank would raise rates, the secondary components of the announcement, including the optimistic outlook in the accompanying economic projections and Fed Chair Yellen’s press conference, were more hawkish than many expected. Though we’re skeptical that the Federal Reserve will follow through on the “dot chart’s” plan to hike rates four times next year, the fact that the Fed hasn’t blinked yet has pushed the greenback higher.

Looking at the weekly chart of the US dollar index, which measures the performance of the buck against six of its major rivals, reveals a similarly constructive long-term outlook. After consolidating within a bullish flag / high base-type pattern for the first three quarters of the year, the index saw a bullish breakout in October and went on to test its 12-year high near the psychologically-significant 100 level. The European Central Bank’s half-hearted easing measures pushed the index down off that level (note that the euro represents nearly 58% of the dollar index), but with the Fed’s continued optimism, the greenback is getting its groove back once again.

The secondary indicators are generally supportive of further gains, with the weekly MACD trending higher above its signal line and the “0” level and the RSI consistently finding support above the 40 level, signaling a healthy uptrend. As we noted above, we may not see any much movement whatsoever for the rest of the year as traders focus more on the holidays than the markets, but a confirmed break above the century mark at 100.00 could mark the start of another leg higher toward 102.00 or 104.00 early in 2016. This bullish view will remain intact as long as the dollar index holds above its 40-week (200-day) moving average, currently around 97.00.

AAAdollarindex12-18-2015 9-38-29 AM

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.