Below is the weekly chart of FXCM's dollar basket, the USDOLLAR. Between 10 July 2021 and 1 January 2022 (blue verticals):
* The USDOLLAR's simple moving averages (SMAs) maintained a bullish formation. I.e., the fast green SMA was above the medium orange SMA, and the medium orange SMA was above the slow red SMA.
* The stochastic positioned itself near or at its upper quintile (green rectangle).
* These are typical during a period of upwards momentum.
The fast green SMA has moved above the medium orange SMA (black ellipse). Both of these are above the slow red SMA. If the SMAs develop angle and separation while maintaining the bullish formation, it will signify momentum upwards. However, there is a resistance area above the current price (red shaded horizontal). Assuming the stochastic moves up towards 80 and maintains that level (red rectangle), the SMA develops angle and separation:
* In that case, bullish market participants will likely have the strength to move the USDOLLAR above the resistance area.
The Fed policy meeting for March will kick off its rate hiking cycle. The announcement is due Wednesday, 16 March. Fed funds futures have the odds for a 50bps hike around 2 to 8. The bet is worse than a day ago due to the Russian invasion of Ukraine. The market believes that 50bps is too aggressive given the uncertainties stemming from the geopolitics and is likely correct. If the situation alleviates, the market may reconsider. However, the hike is likely to be 25bps, probably priced at current levels. This is why the USDOLLAR is having a hard time overcoming present resistance. Moreover, the safety of the USDOLLAR complicates the analysis. If the geopolitics escalate beyond a comfort threshold, money may reallocate into the greenback. Our current thinking is that the 25bps hike dominates, for now, making the resistance level formidable.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.