MacroView_Research

#Dollar Showing Weakness, Intermediately Overbought

TVC:DXY   The U.S. Dollar Index
The U.S. dollar went bid following rhetoric from Federal Reserve officials that a potential rate hike could occur in June, following hotter than expected inflation data.

However, after posting on pending technical weakness here, the dollar has retreated slightly over the last few days. Price action as traded neatly within a descending channel on the daily chart , and potential signals of another move downward are pending:

  • The daily RSI has broken through an indicator support level , and the stochastic indicator is signaling a highly overbought condition. If price price action continues to falter, a sell signal below 80 could trigger selling pressure.
  • The DMI is about to form a bearish convergence, which would indicated bearish price action will take over.
  • In order to regain upward momentum, the DXY             would have to close above channel resistance near 95.66; 96.55 will be key resistance point in order to challenge 98. If selling pressure does occur, DXY             will likely seek out 93.80 (50% fib retracement from current minor uptrend)

The long-term macro dollar theme continues to be deflationary. It is important to note, a spike in inflation has been a late cycle occurrence. Every U.S. recession since the mid-1950s has seen an increase in inflation (after previously declining).

We must also include that as the global economy continues to slow, global central banks will look to continue monetary easing this will at least support the greenback. Furthermore, as the U.S. economy rolls over, a deflationary spiral is expected to occur.

MacroView is still expecting the U.S. economy to reach recession between Q2-3 once final data revisions occur.

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The US dollar gained traction, while it will be important to see a weekly close above descending trend support, as well as trader follow through the FOMC meeting in June. While longterm view is still deflationary, we would like to see a pullback before fully committing.

MacroView is modeling for roughly 50 bps increase in fed funds rate, primarily based on market pressures to "normalize" policy. We're fully aware that any increase will not only strengthen the dollar and erode inflationary outlooks but deteriorate equities.
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