Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Chart Of The Day: Dovish Fed Pressures U.S. Dollar

By (Pinchas Cohen/ 29, 2021 21:32
Chart Of The Day: Dovish Fed Pressures U.S. Dollar
By (Pinchas Cohen/   |  Jul 29, 2021 21:32
Saved. See Saved Items.
This article has already been saved in your Saved Items

After the US Federal Reserve's monthly policy decision on Wednesday, the dollar fell to a three-week low. The USD selloff extended into Thursday, for a fourth day of declines, for the first time since Dec. 4, 2020.

During yesterday's FOMC press conference, Fed Chairman Jerome Powell reiterated, yet again, that higher rates won't be forthcoming any time soon.  According to Powell, "we have some ground to cover on the labor market side," before the bank will start tapering its asset purchases, a more subtle form of tightening than raising interest rates.

Does this mean the dollar will now head higher? The technicals are unclear.

DXY Daily
DXY Daily

The dollar selloff upended a suspicious-looking, short-term rising channel which we've been uncomfortable with because the rising trading boundary followed a spike in the USD. Such a range, after a preceding surge, is reminiscent of a rising wedge, bearish as disappointed bulls who had hoped for a continued spike are left with a tempered incline that's now too slow for their taste. So they sell off.

However, the price didn’t form a decisive wedge, one in which the lower boundary rises noticeably more sharply than the upper bound—which would demonstrate exponential buying, outpacing the steadier selling. That zealous buying, which didn't fully play out, sets up the disappointment we just described.

Still, the MACDs short MA drooped below that of the long one, retested, then fell again. That provides evicence of weakening recent pricing, smoothed out by averages.

Also, the RSI provided a negative divergence, as momentum didn’t support the rising range.

Most telling though, the disguised rising wedge developed below the Mar. 31 high, which itself found resistance by the November highs. Connecting the highs forms the neckline for a potential double-bottom, or alternatively for an ascending triangle, as the second bottom. formed in May, is slightly higher than the Jan. 6 bottom.

Either way, both formations encompass the same dynamics, rendering the difference academic. As a point of interest, the last time the US currency fell for four straight days it occurred a month into the patten, forming the first leg lower.

The 50 DMA just crossed above the 200 DMA, triggering a Golden Cross, indicating that smoothed recent pricing is strengthening relative to longer-term, averaged-out pricing. Also, the 50 DMA just peaked above the 100 DMA, creating a bullish formation since each shorter moving average is higher than the longer one. This signals a wide spectrum of improving prices.

Though this could be exciting, remember these are “moving" averages—their strength lies in their movement. They call attention to one trend overcoming another.

However, these moving averages have been tracking a price that has been going sideways since November. Would that render them useless? We’re not sure.

The 200 DMA just fell into the pattern midway, and this is the first time the 50 or 100 DMAs have crossed the 200 DMA. Thus, we think that does give the signal validity though we’ll assign it a lower weight in our preponderance of evidence, following the extended sideways, trendless price movement.

Trading Strategies

Conservative traders should wait for the price to either return to the bottom of the channel or break out above the top to demonstrate accumulation, before considering a trade.

Moderate traders would risk a short if the price returns to the broken rising range and finds resistance.

Aggressive traders could short at will, if they expect the greenback to return toward the bottom of the large pattern since November, as long as they accept the likelihood of whipsaws. Money management is key. Here’s an example:

Trade Sample

  • Entry: 92.50
  • Stop-Loss: 93.00
  • Risk: 50 pips
  • Target: 90.00
  • Reward: 250 pips
  • Risk:Reward Ratio: 1:5
Chart Of The Day: Dovish Fed Pressures U.S. Dollar

Related Articles

Chart Of The Day: Dovish Fed Pressures U.S. Dollar

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email