Trade of the Day – March U.S. Dollar Index – February 12, 2016

U.S. economic reports and a Fed speaker take center stage today, which means the March U.S. Dollar Index is the market to watch.

Today, the U.S. Commerce Department will report retail sales figures for the month of January. Overall retail sales are expected to have rebounded slightly last month, increasing 0.1%, after a drop of 0.1% in December. Meanwhile, core retail sales – which corresponds the closest to the GDP’s consumer spending component – likely improved by 0.3% in January after dropping by that same amount the previous month.

After this week’s steep sell-off and the weak attempt by Fed Chair Janet Yellen to build a case for higher rates, U.S. Dollar traders will welcome any good news and this could come from the retail sales report.

Also on tap is New York Fed President William Dudley. He will be speaking in a press conference focusing on U.S. economic outlook. Last week, Dudley said that the volatility affecting the global market so far in 2016 could force the U.S. Federal Reserve to rethink its decision to raise rates for the first time in nearly a decade at the end of last year.

If Dudley tones down his commentary from last week then we may see some support return to the U.S. Dollar. If he reiterates his message from last week then another wave of selling may hit the market.

Technically, the key area will be watching is the downtrending angle at 95.95 and the major Fibonacci level at 96.02. This area is controlling the direction of the market.

Bullish retail sales numbers and hawkish commentary by Fed President Dudley could trigger breakout rally over 96.02. This could trigger an acceleration to the upside for a nice day trade.

If the retail sales report misses the estimate or if Dudley reiterates his stance that the Fed may have to rethink future rate hikes then look for the March U.S. Dollar Index to break. The angle at 95.95 will likely act like resistance in this case.

If the retail report and Dudley’s comments produce mixed results then we could be looking at a choppy, two-sided trade on both sides of 95.95 to 96.02. This would be the worst scenario.

Depending on the reaction to the retail sales report and Dudley, we’ll either be selling into 95.95 or buying a breakout over 96.02. The order flow and price action will tell us what to do.