September 30, 2021 15:22:12

Although some commentators are warning that the big moves in the dollar this week have been driven by quarter-end institutional and corporate flows, there are plenty of reasons why “king dollar” headlines have reappeared.

The Fed’s hawkish turn last week has seen a repricing of their tightening cycle. Persistent and broad-based inflation is driving this further in recent sessions as supply chain bottlenecks see energy markets go parabolic. Fed Chair Powell warned only yesterday that “frustrating inflationary pressures” would continue and he will be watching the core PCE data out tomorrow very closely.  

Allowing for a solid jobs report next Friday, there is the real possibility of a first rate hike during the second half of next year. This comes as the global recovery is seemingly stalling amid weaker Chinese data. This is certainly leaving “little room for a dollar downtrend” as one investment bank analyst has phrased it.

The widely watched benchmark 10-year US Treasury bond has climbed above 1.50% from roughly 1.30% just over week ago. This government bond informs the valuations investors are willing to pay for higher-risk equities. We note the year-to- date highs come in at 1.77%.

DXY Weekly Chart: Bullish breakout comes into resistance zone

We can see on the longer-term chart that the greenback has gently rebounded from the base around 90. There is the semblance of a double bottom reversal pattern which has an upside measured move target above 95.

Before this level, we have some major resistance. The March 2020 pandemic low (94.65) and September 2020 top (94.74) sit near the 200-week SMA at 94.75. There’s also the 38% Fib level of the March 2020 to January 2021 decline (94.47) and the 100-week SMA at 94.35 just above current prices.

But bullish momentum has picked up with the weekly RSI rising to levels last seen in March 2020. Support below clearly sits at this year’s top at 93.72.