U.S. Dollar Index (DXY): Gaining Upside Momentum Ahead of Trump Press Conference

The U.S. dollar index had a relatively quiet session on Tuesday, as no key economic releases were on the calendar. While the same holds true for today in regards to economic releases, volatility does have the potential to increase later in the session, as President-elect Donald Trump will hold a press conference at 11:00 ET, in which he is expected to reveal more of his plans for the economy. The dollar is higher ahead of the press conference, currently trading near the high of the session at 102.36, up 0.31%.

The rally in the dollar over the past several weeks has been driven by the election of Trump, given his promises of spending and tax cuts. The dollar index, which measures the strength of the greenback against six major currencies, is up in excess of 8% from the November intraday low to the January intraday high.

Trump has vowed to “Make America Great Again” by boosting federal spending and cutting corporate taxes. Today marks his first official news conference since being elected President. A press conference was previously scheduled for December 15, almost a month ago, but Mr. Trump canceled that press conference three days beforehand, saying his team needed more time to sort out the details to address the future of his business empire. Trump is expected to repeat his pledges of ramping up spending and cutting corporate taxes, but it is open to question whether he will reveal any specifics on policies.

The dollar is gaining ground ahead of the press conference and is currently testing first resistance at Monday’s 102.52 high. On a sustained move above this level, the target becomes the rally peak established January 3rd at 103.82.

The broader bias in the dollar remains to the upside and with the Stochastic, a price momentum indicator, moving higher but well below an overbought level, the path of least resistance in today’s session appears to be to the upside.

Aside from a bullish technical condition, the likelihood of higher inflation and rising interest rates in 2017 should continue to support dollar strength. Earlier this week, several Fed officials spoke and all tended to agree that the FOMC is ready to continue raising interest rates. Chicago Fed President Evans, an FOMC voter and typically a dove, said on Monday that he expects inflation to move more solidly toward the Fed’s 2% target and while two rate hikes this year are not unreasonable, and three hikes “not implausible.” Boston Fed President Eric Rosengren also spoke Monday and supported the notion of three rate hikes this year.

Aside, from the President-elect’s press conference, there are no other economic events on the U.S. calendar today. On Thursday, import/export prices and jobless claims are on the calendar. In addition, several Fed officials are due to take to the podium again, as Fed Presidents Harker, Evans, Lockhart and Bullard are all scheduled to speak.

The key economic releases of the week are due Friday, as U.S. Retail Sales and PPI for December are on the calendar at 08:30 ET. Retail Sales is expected at 0.7%, following a reading of 0.1% in November. Markets will be looking at the retail spending data to judge whether the recent improvement in consumer confidence has translated into stronger spending. December PPI is expected at 0.3% following a reading of 0.4% in November. At 10:00 ET on Friday, the University of Michigan Sentiment Index will be released. A reading of 98.5 for January is expected, following a reading of 98.2 in December.

Should today’s upside momentum fail to be sustained, first support is at yesterday’s 101.51 low followed by last week’s 101.30 low, which represents the low of a piercing pattern, a bullish candlestick signal.

U.S. Dollar Index Daily Chart

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Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.