The dollar has seen better days, and bulls have been licking their wounds. Weakness has been a result of the Federal Reserve standing their ground with a lax monetary policy for an indefinite amount of time.
Current Federal Reserve chairman Ben Bernanke recently said that accommodative policy will be needed for some time and that a low interest rate environment will be in place for the “foreseeable future.” The dollar fell heavily when the Fed chair nominee Janet Yellen gave the thumbs up to continue bond purchases.
“Bernanke and Yellen remain very consistent with each other that rates in the U.S. are going to remain low for a long time,” said Thomas Averill, a managing director at Rochford Capital.
The dollar is up slightly, but is extremely vulnerable. Price action is trapped in the miniscule space between the 20 and 50 EMA. Price action points to further to the downside with the 78.6 percent Fibonacci retracement as support. However, the FOMC release is likely to produce a heavy knee-jerk reaction which could be in either direction (sell the rumor, buy the news?). A downside spike will likely pierce through the Fibonacci support, while topside potential will lie near 81.31.
It will be important to see where the dollar ends up post-FOMC. An absence of buying after a spike downwards, and even an absence of follow through on any topside gains, will not be good news for the dollar.
Post-FOMC dollar analysis will be provided.