Powell Testimony Could Be Source of US Dollar Volatility

The U.S. Dollar is trading higher against a basket of major currencies early Wednesday as the crisis in Ukraine continues to pressure the highly weighted Euro and British Pound. The dollar is also trading higher against the safe-haven Japanese Yen, but lower against the Canadian Dollar. Against the safe-haven Swiss Franc, the dollar is trading flat.

At 06:17 GMT, March U.S. Dollar Index futures are trading 97.470, up 0.064 or +0.07%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $26.06, up $0.18 or +0.70%.

The greenback is also being supported by a slight rise in U.S. Treasury yields as investors prepare for Fed Chair Powell’s testimonies to Congress on Wednesday and Thursday, for any indication on whether the Russia-Ukraine conflict will affect the central bank’s plans for tightening monetary policy.

Ahead of Powell’s testimony, the market volatility appears to have encouraged some traders to dial back expectations of a 50-basis point rate hike. On February 10, the chances of that happening stood at about 80%. Today, the chances are nearly zero percent.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 97.735 will signal a resumption of the uptrend. A move through 95.650 will change the main trend to down.

The index is trading inside last Thursday’s wide range, making its 50% level at 96.995 support.

The minor range is 95.650 to 97.735. Its 50% level at 96.695 is additional support.

The short-term range is 95.145 to 97.735. Its 50% level at 96.440 is the key support.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Wednesday is likely to be determined by trader reaction to 96.995.

Bullish Scenario

A sustained move over 96.995 will indicate the presence of buyers. If this continues to generate enough upside momentum then look for a possible surge into last week’s high at 97.735. This is a potential trigger point for an acceleration to the upside with 98.500 the next likely target.

Bearish Scenario

A sustained move under 96.995 will be a sign of weakness, but sellers will have trouble at 96.695 and 96.440. The latter, however, is a trigger point for an acceleration to the downside with the next target coming in at 95.650.

Even if the main trend changes to down, the retracement zone at 95.470 to 94.930 is expected to provide support.

Side Notes

Fed Chair Powell could cause some volatility on Wednesday if he tells Congress that policymakers could consider passing on any rate hike at its March 15-16 meeting if the situation in Ukraine escalates or if Russia brings the fight to U.S. soil.