Fed/Treasury announcements may trigger USDInd breakout

• Fed/Treasury announcements today may spike FX volatility

• USInd has climbed 3 months in a row

• Bullish momentum stalling as traders await new catalyst for breakout

• Dollar bulls will look to extend uptrend by 265 points

• Dollar bears hoping for potential 120 point move south

 

The USDInd may see a volatility-triggering event today (Wednesday, November 1st).

Wild price swings for the USDInd would likely owe to two pivotal decisions out of the U.S:

• US Treasury refunding announcement at 12:30 GMT
   
• Fed rate decision @ 18:00 GMT

The market's general expectation is for a pause in US interest rate hikes, owing partially to rising bond yields which most analysts see as tantamount to a rate hike.

READ MORE: Trade of the Week - Can SPX500_m recover from technical correction?

 

Yields on 10-year US Treasuries are hovering just below the psychological 5% level, though remains at their highest levels since 2007. And we know that the US dollar tends to have a positive correlation with Treasury yields (both are likelier to move in the same direction).

So, we look to the USDInd, which tracks how the US dollar performs against a basket of its G10 peers including EUR, GBP, JPY and others.

 

USDInd uptrend stalls, breakout imminent?

Note that the USDInd has closed stronger/bullish for the last 3 months.

However, October also saw the shortest trading range (the difference between the highest price and the lowest price within that month):

• August: 283 points
   
• September: 333 points
   
• October: 189 points

Such "thinning" monthly trading ranges suggest that the bullish momentum for USDInd is waning, though still intact.

On the weekly and daily time frames, bullish flags are seen, lasting for 5 weeks and 27 days respectively.

Flag patterns are continuation patterns expected to break out in the direction of the trend (flagpole) preceding the range/sideways movement (flag).

Hence, the “flags” on both the weekly and daily timeframes imply that traders are waiting for a new catalyst that would determine the next big move for USDInd.

 

 

How might USDInd react?

If the announcement out of either the Treasury or the Fed today results in US yields resuming its uptrend, then US dollar bulls may go charging on.

From a technical perspective, more gains may arrive if we see a strong breakout above the flag’s resistance around 106.87, the flag's resistance which is being tested currently).

A stronger bullish signal may be derived especially if USDInd posts highs above 107.37, its highest price year-to-date.

 

With the flagpole used as an estimate for a flag's measured move objective ...

Dollar bulls will be looking for moves to the upside around 265  points. 

However, dollar-longs (those hoping that prices will move higher) may experience confrontation at key resistance levels ahead, notably:

• 107.89: intraday high on November 21, 2022, and a key battleground for bears and bulls in the past
   
•  110.21: the 261.8 Fibonacci level when drawn from September 30th’s intraday low to the  October 3rd intraday high.

 

USDInd bears (those hoping prices will move lower) on the other hand will be looking for dovish comments and action from the US Federal Reserve, or a less-than-expected amount of securities to be auctioned by the Treasury (currently expected to total US $114 billion).

This may result in the US index ultimately declining back towards:

• 106.124: the 161.8 Fibonacci level
   
• 105.602: the flags support zone

 

 

USD index Dollar index Federal Reserve Treasury yields