It has been a rough 12 months for USD Index futures. Values have consistently fallen, forming what is a textbook long-term downtrend. The market drivers are obvious ― COVID-inspired FED QE and government stimulus. At this point, one has to ask if anything can help the Greenback reverse its fortunes.

By most accounts, it’s going to take a sustained COVID-19 economic turnaround before the FED will begin tightening up policy. But, what will acceptable conditions look like? At this point, here are the factors that will need to be present before Jerome Powell turns into a hawk:

• Maximum Employment: According to the FED, maximum employment must be reached before its policy of unlimited QE is meddled with. This means that the U.S. Unemployment Rate will need to hit in the neighborhood of last February’s 3.5%. It currently stands at 6.3%.
• Inflation: Right now, the FED is committed to inflation averaging above 2% for an “extended period.” Consumer inflation has been near-flat for the past 12 months, despite huge QE and government stimulus.
• Herd Immunity: Earlier this month, U.S. Infectious Disease honcho Anthony Fauci stated that “some degree of herd immunity” may be possible by fall 2021. Of course, this is pure speculation on Fauci’s part, stemming largely from projected COVID-19 vaccination rates. The FED has been vocal on the amount of future economic uncertainty due to the path of COVID-19 ― policy is extremely likely to stay dovish until the experts declare herd immunity.

Add it all up: the FED isn’t turning hawkish anytime soon. So, the path ahead for the USD Index appears bleak until at least the fall. 

USD Index Futures Hold In Bearish Territory

As you can see from the weekly chart below, the downtrend in the March USD Index is alive and well. 

Here are the two levels to watch in the weeks to come:

• Resistance(1): 38% Current Wave, 91.105
• Support(1): Multi-Year Lows, 89.165

Overview: The key number in this market is the 38% Current Wave Retracement at 91.105. As long as prices remain beneath this level, more downside extension is probable for the USD Index.