USD Index Futures Take Out Key 38% Resistance Level - Forex News by FX Leaders

USD Index Futures Take Out Key 38% Resistance Level

Posted Friday, March 5, 2021 by
Shain Vernier • 2 min read

March has opened with a bang for USD Index futures. Rates are now creeping 92.000 and have taken out a key intermediate-term Fibonacci resistance level. This week’s action in the EUR/USD (-1.29%), USD/CHF (+2.40%), and USD/JPY (+1.66%) have boosted overall forex sentiment toward the Greenback. Despite unlimited Fed QE and more COVID-19 government stimulus, the dollar continues to catch bids.

This week’s rally in the Greenback is a bit perplexing. However, Jerome Powell’s comments yesterday suggested that inflation and Fed policy may be in a position to shift. The CME FedWatch Index certainly thinks so, assigning only a 95% chance of rates being raised ¼ point from current levels (0.0-0.25%) this year. Although 95% sounds like a lot, the index has sat at 100% for nearly a year. Now, it appears as though institutional players are betting that the COVID-19 vaccines and budding inflation will bring about a late-2021 shift in the Fed’s stance.

In yesterday’s Wall Street Journal Q&A, Fed Chairman Jerome Powell addressed the topic of inflation. Here’s a look at the highlights:

  • “We [Fed] expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects. That could create some upward pressure on prices.”
  • In response to a rally in U.S. Treasuries: “There’s good reason to think that the outlook is becoming more positive at the margins.”

Judging by these comments, a return to business-as-usual is likely to kick-start inflation. And, although the Fed will be patient, their hand may be forced. At this point, it looks like Q4 2021 is going to be a pivotal time for Fed policy and USD Index futures.

38% Fibby Out, Downtrend In USD Index Challenged

For the first time since 2020’s mid-March COVID-19 mania, USD Index futures are challenging the Weekly Bollinger MP and SMA. This is a big deal ― if next week brings a bullish break above these levels, the long-term downtrend will come under fire.

March USD Index Futures (DX), Weekly Chart
March USD Index Futures (DX), Weekly Chart

Overview: Going into the weekend break, it’ll be important to keep one eye on the news cycle. The key story to watch out for is the Senatorial vote on COVID-19 stimulus. It is a foregone conclusion that the $1.9 trillion dollar package will be passed. If there are any unexpected hiccups, a Monday correction in U.S. equities and the USD Index may be in the cards.

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About the author

Shain Vernier // US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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