U.S. Dollar Index (DX) Futures Technical Analysis – Fed’s Bostic Calls for ‘Slow and Steady’ Rate Hikes

The U.S. Dollar Index is easing lower on Friday and in a position to post its first weekly loss since the week-ending January 27 as traders tried to evaluate the path for Federal Reserve policy.

The dollar was underpinned throughout February by rising U.S. Treasury yields as investors turned hawkish about Fed policy and started pricing in as many as three 25-basis point rates hikes in March, May and June. Traders also started to price in the possibility of a 50-basis point rate hike at this month’s Fed policy meeting.

At 06:00 GMT, March U.S. Dollar Index futures are trading 104.830, down 0.165 or -0.16%. On Thursday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.44, up $0.17 or +0.58%.

However, taking some steam out of the dollar and the breathless advance in U.S. yields were comments from Atlanta Fed President Raphael Bostic overnight that “slow and steady is going to be the appropriate course of action,” despite new labor figures adding to the run of strong data of late.

Risk-On Bearish for Dollar, Risk-Off Bullish for Dollar

“For this year, the outlook for USD will continue to depend critically on whether bonds and equities can rally together (as appeared to be happening in January) or whether we remain in the bearish environment that dominated 2022,” RBC strategists wrote in a client note.

“In turn, this will depend on incoming U.S. data, particularly inflation data.”

Dollar Strength Temporary:  Reuters Poll

Analysts polled by Reuters said recent dollar strength is temporary, and the currency will weaken over the course of the year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the European Central Bank.

Daily March US Dollar Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 105.320 will signal a resumption of the uptrend. A move through 104.045 will change the main trend to down.

The nearest support is a pair of minor pivots at 104.683 and 104.503. The closest resistance is a long-term 50% level at 105.723.

Daily March US Dollar Technical Forecast

Trader reaction to the pair of 50% levels at 104.683 and 104.503 is likely to determine the direction of the March U.S. Dollar Index on Friday.

Bullish Scenario

A sustained move over 104.683 will indicate the presence of buyers. Taking out yesterday’s high at 105.155 will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the two main tops at 105.320 and 105.500, followed by the long-term 50% level at 105.723.

Bearish Scenario

A sustained move under 104.683 will signal the presence of sellers. Taking out the next 50% level at 104.503 will indicate the selling pressure is getting stronger. This could trigger a further break into the main bottom at 104.045. If this fails, the main trend will change to down with a support cluster at 103.685 – 103.664 the next target.