Potential Head & Shoulder in Dollar Index ahead of Fed’s decision

All eyes on this afternoon’s FOMC statement on monetary policy and the strength of the dollar. The Fed is not expected to hike interest rates this week, but any hints on the likelihood of a future rate rise could move markets. The dollar index continues to make gains ahead of the announcement, rising +0.1% ahead of the U.S open. Despite the expectations of the Fed acknowledging the improved U.S. data, the expected tendency for any immediate rate hikes has been scaled back since the Brexit.

Technical Insights

Short Term Chart: DXY (15min)

Trend Analysis: Bullish (50 SMA above 200 SMA).

Levels Analysis: Critical support at 96.85

Takeaway: Both moving averages are showing a bullish momentum, however a potential head and shoulder pattern is in formation. My perspective is if the price is not able to clear up the high formed by the head, it may start to trend downward and complete the head and shoulder pattern. In addition, if the price breaks the neckline and critical support at 96.85, I am expecting a further downward momentum to the 95.15 level base on the measure rule of chart patterns.



Long Term Chart: DXY (Daily)

Trend Analysis: Bearish (50 SMA below 200 SMA).

Levels Analysis: Critical support zone at 91.9 - 93.1 and resistance at 97.60.

Takeaway: With the short term potential of a bearish chart pattern, I am expecting price to pull back down in the short term, to the critical support zone at 91.9 - 93.1. However in a longer term perspective, a huge descending wedge formation may be the catalyst of a potential huge upward movement.