It was a rather pedestrian FOMC Statement day on Wednesday. There is GDP data incoming, and the widely Fed-followed Core PCE Price Index data comes out on Friday. What can we take away from the FOMC Statement and press conference?

Rates unchanged. No rush to raise interest rates. Inflation should persist.

No surprises here.

However, there was some notable price action in the US Dollar Index during Wednesday’s session. The US Dollar Index initially rose on the FOMC statement at 2:00 PM. During the press conference, the USD fell as Fed Chair Jerome Powell mentioned that inflation should persist for several months. It is noteworthy price action and can be a forward-looking indicator for the direction of other asset prices.

First, let’s take a look at the daily chart of the $DXY:

Figure 1 - US Dollar Index November 1, 2020 - July 28, 2021, Daily Candles Source stockcharts.com

As we know, the US Dollar has been in a longer-term downtrend. The repeating pattern has been lower daily highs. Short the dollar was a heavily crowded trade recently that we examined and discussed. After reaching oversold conditions, a quick bounce occurred. However, with no rush to raise interest rates and Fed open market operations continuing, the $DXY could try the downside once again. This downward move could impact the prices of commodities even further to the upside. There is a key Fibonacci level that was not quite reached in the index on its last downside attempt (near $88.41).

Figure 2 - US Dollar Index July 28, 2021 - July 28, 2021, 1-minute Candles Source stooq.com

I find value in this type of analysis; when you can take a daily/longer-term trend/outlook and then take an intraday peek on a day such as a Fed day. I would have guessed that the market would be factoring in further inflation already. However, based on the $DXY behavior intraday, it appears that the US Dollar may want to get set to go and retest the recent low near $89.50.

GDP Data, Core PCE

On Thursday morning, we are getting GDP (q/q), and on Friday morning we will get the Core PCE data. GDP can be a market mover, and the Fed does like to monitor the PCE data for inflation signals.

As the US Dollar may weaken some, a place to park some cash could be in the UDN - Invesco DB US Index Bearish ETF. I wouldn’t expect any home runs here; the ETF is unleveraged, but a 2 - 3% pop could be in the cards here if the $DXY wants to test its recent lows.

Figure 3 - Invesco DB US Dollar Index Bearish Fund - September 4, 2020 - July 28, 2021, Daily Candles Source stockcharts.com

UDN is doing its job rather well and is inversely tracking the US Dollar Index at an efficient rate. Other traders could use the $DXY product on ICE if their accounts are enabled for it. ICE passes through the monthly fee for its products to retail traders (somewhere in the neighborhood of $110 per month) to trade these products and receive quotes.

So, using UDN can give traders some pure exposure to a dollar decline. We will be eyeballing the $21.48 - $21.64 levels as potential TP targets for now. Levels and sentiment can change quickly, so stay tuned!

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Enjoy your day! And remember to be patient with your entries.

Rafael Zorabedian

Contributor

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

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