There's no denying the importance currencies play on economic activity of the world with trillions of dollars exchanging hands everyday. The most prominent of all is the US Dollar that's been adopted as a standardised way of trading with other nations, easing the necessity to hold stock of a wide range of different currencies to facilitate trade.
A fair amount of coverage has been given to the recent spike in the US Dollar against other major currencies as a result of the market heeding the call of the US Federal Reserve's promises to lift interest rates that have remained abnormally low for an extended period of time.
If you've been watching proceedings closely of the progress year to date you'd noticed the divergence of trend emerging between the developed nations monetary policy in which the US has stood firm by its decision to see rates normalise whereas countries such as Switzerland, Europe and more recently Japan exploring the depths of interest rates by sinking them below zero.
I thought a fair assessment of the situation could be put to the test with the analysis of the famed U.S Dollar Index which tracks a basket of a few of the largest trade partners currencies against the US Dollar. I stress a few because currencies such as the Mexican Peso, Chinese Yuan and many more are not included yet form a significant part of trade from and into the US.
The currencies included;
Euro (57.6%)
Great Britain Pound (11.9%)
Swiss Franc (3.6%)
Swedish Krona (4.2%)
Japanese Yen (13.6%)
Canadian Dollar (9.1%)
Monthly
A general expectation of the index is big moves occur whilst monetary policy is changing which doesn't leave too much surprises in terms of understanding possible directions. We saw that during the tenure of Ben Bernanke the index remained subdued up until the point when quantitative easing was weaned away. His successor Janet Yellen was the first to make mention of hiking interest rates and in doing so set in motion a stampeded of dollar bulls who shot off on an impressive run.
They managed to surpass the important resistance of 88 that marked out the end of the downtrend suggesting we would experience bullish overtone when tracking the dollar in the medium term. However what we've witnessed is a pause in trend, a correction in time rather than a correction in price that has trapped the index into a consolidatory range.
This aligns with the Fed's indecisiveness or hesitancy not to hike rates at the moment which departs from their projected outlook they gave in December with the first increase.
Staying range bound instead of pulling back indicates the market doesn't expect a shift in the Fed's policy anytime soon which gives the Fed an added bit of confidence in their ability of handling the outcome thus far. The price is sitting on support with the stochastic in an oversold position so I'd expect to see price moving back to the top of the range, if it doesn't major support will be found at 89 which could be a possibility if the RSI slips back under 50.
Weekly
On the weekly we see the same range bound formation but a number of indicators that signal contrary to the Monthly chart, the first being the 50 simple moving average (SMA) that exhibits a flat gradient and shows the price hovering below it. The second is the RSI below the 50 for a consecutive number of weeks indicating a slowdown in momentum. Apart from these the only indicator that shows any kind of parallel to the Monthly chart is the stochastic that's approaching the oversold region.
This makes our analysis difficult to speculate the direction of the next move however it should also be noted that longer timeframes hold preference over shorter ones. In saying that it would be expected that the support of the range should be strong enough to hold for the time being unless further evidence would suggest a degree of weakness emerging out of the US economy.
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