US Dollar Index slumps as Fed Chair Powell plays it safe

Summary:

The US Dollar index continued its recent precipitous decline, marking the fourth consecutive day of losses after dovish FOMC statement.

The U.S Dollar index continued its recent precipitous decline, marking the fourth consecutive day of losses after Fed Chairman Jerome Powell’s dovish FOMC statement.

The Index, which gauges the strength of the US Dollar against a basket of 13 major trading pairs, has only managed to gain in five of the last 21 sessions

Market participants, as always, paid close attention to the statement following the FOMC interest rate decision. The US Dollar index would be particularly reactive to any mention of policy tightening or Fed chair Powell voicing concerns over inflationary pressures.

Neither was forthcoming. The Fed sees continuing signs of improvement in the economy with inflation viewed as transitory, posing no immediate risk to the current supportive financial conditions.

The US Dollar Index briefly spiked to an intraday high of 91.11 as Powell admitted to some signs of ‘froth’ in equity prices. However, the rally was short-lived. The index finished the day 90.58, just off the session low of 90.532.

US Dollar Index Technical Outlook

Looking at a long-term chart, we can see the US Dollar Index price is approaching major support levels.

An ascending trend line linking the lows of January 21st and February 25th (89.29 and 89.68) sits just below the current price, at 90.32. Should this support level fail, the Dollar Index looks likely to test 2018, lows at 88.30.

Any sharp extension to the lower support level could provide a buying opportunity. The Relative Strength Indicator is currently showing a reading of 32.0. Typically a reading below 30 on the RSI has proven a good indicator of the market being close to an interim bottom.