Q and A: Does Dollar Index DXY provide any clue for FOMC?

If this index has any predictive value, those red bars last month and this must be signalling further disappointment.


Question from student on DXY, Fed

I got an email from student who is concerned about the FOMC meeting tomorrow night. Daniel asks

Please find enclosed my analysis. Could you also share your thoughts on DXY please? If DXY is an indicator of what fed might do tonight, what can we read from the DXY chart? Thank you.

DXY monthly chart

DXY monthly chart

DXY daily chart

DXY daily chart


Response, Dollar Index analysis

We can’t really tell what the Fed will do based on DXY chart. We think that the Fed is not really concerned about the US Dollar right now but is concerned about the bond and stock markets instead. Stock market affects individuals as well as companies while bond market affects the ability of the US to borrow and the price of borrowing.

BTW Daniel, the Fed won’t do anything tonight. It’s tomorrow.

Responding to the charts only:

  1. DXY is resisted on top by round number 100.
  2. I would ignore the very long extended trend line; trend lines are indicative but hard to apply precisely.
  3. DXY year – year trend is up.
  4. There is no sign of bearish reversal i.e. USD weakening.
  5. November 2005 high of 92.63 is indeed support as seen from price action/low of last month.
  6. August was a bearish month.
  7. DXY is in the red at this moment. Until it overcomes 95.86, sentiment will continue to be bearish.

The key reason Dollar Index was very bullish last year was anticipation for a Fed rate hike. It peaked in March this year coinciding with what must be the most volatile price action post-FOMC. In addition, DXY’s performance since then was mostly sideway with a number of bearish months. This could only be read as disappointment. If this index has any predictive value, those red bars last month and this must be signalling further disappointment.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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