WWM - Analytics


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    Today’s Trading Edge: Dollar Index drops as no sign of inflation in wages likely will delay any Fed rate hikes


    The U.S. dollar continued to weaken following last Friday’s U.S. nonfarm payrolls report. While the US added 242,000 jobs in February, the fourth month out of five of 200K growth, the FX markets primarily focused on the -0.1% drop in average hourly earnings.

    Friday afternoon, U.S. Federal Reserve member Kaplan, a non-voter stated that while the US Payroll report was good, he would like to see more evidence we’re going to meet that inflation objective. If wages don’t rise over the next couple of months, the Fed may wait longer before raising rates.

    The initial reaction on the headline beat of nearly 40K jobs helped elevate price to 98.05. The dollar quickly erased its gain and has tentatively found support from both the psychological 97.00 handle and the 200-day SMA.  

    The US dollar index daily chart shows that the bullish Gartley pattern that formed on February 11th appears to have stalled. Point D of the bullish reversal pattern was confirmed with the 78.6% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C leg. If the current four-day slide breaks below the noted 200-day SMA, price could drop towards the 94.50 zone.   A daily close below that level could open the door for a drop 95.25.

    If the dollar stabilizes here, we could see price consolidate towards the 98.00 zone. If we see price resume its bullish leg higher, initial resistance may come from the 99.35 level. Further upside could target the psychological 100.00 zone.

    The trade: Sell Dollar Index at 97.75 with a stop loss at 98.25 and take profit at 96.75.  The risk/reward ratio is 1:2

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