US Dollar Index: Uptrend Resumes after Two-Day Setback

The U.S. Dollar is edging higher against a basket of major currencies Friday afternoon, hitting a more than two-year high. The main catalyst behind the greenback’s strength are supportive comments from Federal Reserve Chair Jerome Powell on Thursday.

In a speech at an International Monetary Fund (IMF) meeting, Powell implied his support for a half a percentage point tightening at next month’s policy meeting, as well as likely consecutive rate hikes this year.

At 17:55 GMT, the June U.S. Dollar Index is trading 101.275, up 0.661 or +0.66%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $27.05, up $0.16 or +0.58%.

More 50-basis Point Fed Rate Hikes to Come

Powell on Thursday said a half-point interest rate increase “will be on the table” when U.S. central bankers meet on May 3-4.

Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase in May and June, and nearly 250 basis points of cumulative increases in 2022.

How Did ‘The Basket’ Perform?

The Euro fell after European Central Bank (ECB) officials sent mixed policy signals. The Sterling fell against the dollar to its lowest level since November 2020 after sales data and recent Bank of England comments signaled a possible slowdown in the expected rate hike path.

The U.S. Dollar also rose against the Japanese Yen, but the move was subdued as traders overall remained wary of intervention from Japanese monetary officials to strengthen the Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend resumed when buyers took out the previous main top at 101.045. A trade through 99.810 will change the main trend to down.

The long-term uptrend will remain intact as long as the market remains on the strong since of the retracement zone at 98.200 to 96.720.

Daily Swing Chart Technical Forecast

The direction of the June U.S. Dollar Index into the close on Friday is likely to be determined by trader reaction to 100.614.

Bullish Scenario

A sustained move over 100.614 will indicate the buying is getting stronger. If it continues over the near-term, the market could see a steady grind or an acceleration to the upside with the March 20, 2020 main top at 102.990 the major target. This top was formed during the turmoil and uncertainty of the COVID-19 pandemic.

The relentless flooding of U.S. Dollars around the world by the Federal Reserve and the U.S. government were the catalysts that led to this top.

Bearish Scenario

A sustained move under 100.614 will signal the presence of weakness. Since we don’t see a change in the major bullish fundamentals, any signs of a top would likely be fueled by profit-taking or a major change in policy from a major central bank like the European Central Bank (ECB) or the Bank of Japan (BOJ).