by Eli Wright
On Monday, US President Donald Trump signed an executive order withdrawing the United States from the TPP trade agreement with eleven countries located in the Pacific Rim. He also intimated that a renegotiation of NAFTA could be on the White House's near term agenda.
Yesterday, he revived two oil pipeline projects—Keystone and Dakota Access—which had both been blocked under the Obama administration, signalling that infrastructure is also on the White House's business-friendly radar near term. Possibly as a result, US markets closed higher, with the Dow jumping more than 100 points and the NASDAQ and S&P 500 finishing at new record highs.
At the same time, the Fed continues to project that it plans to raise rates three times in 2017.
The US Dollar Index fell below 100 at one point yesterday, then rose back above that key level, albeit barely. Earlier today it once again dropped below 100. Which way will the USD go next?
A look at the daily technical chart shows that the dollar gained 3.5% in the two weeks following the US election. From November 8-18, it went from 97.72 to 101.22, strongly buoyed by the “Trump Rally,” trader confidence that Trump’s policies would “make America great again.”
After range-bound trading for about two weeks, just when traders considered taking profits and a bearish engulfing candle appeared, the Fed hiked interest rates and announced that they planned three more increases for 2017. Over the next two weeks, the Dollar Index jumped 2.7%, peaking in intraday trading on January 3 at 103.81.
At that point the dollar began a two-week corrective phase. Profit-taking intensified last week, just before the inauguration, when then President-elect Trump said that “our dollar is too strong.” Since Trump’s inauguration speech emphasizing US protectionism – never a good sign for global trade – the dollar has slid.
The dollar is now at a tipping point and technical support is getting tested between 100-99.50. Indeed, during each of the past three days the dollar has dipped below 100. If that bearishness persists and the greenback slices completely through that range, the dollar could gap lower, to 96.9-95.9.
However, if support holds and the dollar bases, USD could rebound to 103.5, which would be its high for 2017 thus far.