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Dollar Index Near Breakout Ahead of FOMC Meeting

The March 2017 US Dollar Index futures contract is trading just below the November 24 high of 102.025 ahead of the December 14 FOMC interest rate announcement. 102.025 will be a key price level to watch over the coming days.

In November the Dollar Index edged to multi-year highs, eclipsing prior peaks around 101 (from 2015). After hitting 102.025 on November 24 the contract dropped as low as 99.25 and has since bounced to the 101 region in mid-day trading on December 12.

102.025 is important as it represents a breakout or false breakout level. If the contract can break and hold above 102.025, then the price likely to continue rising in alignment with the uptrend that began back in April. The next target is just above 104.

Dollar Index - Daily Continuous Chart

A quick move above 102.025 followed by a drop back below 102.025 could signal a false breakout, triggering selling by those who bought the breakout higher or are expecting one. Shorts are also likely to be drawn into this false breakout trade. Going back to 2015 the Dollar Index has made little headway, trading in a giant range with support in the 94 to 92 area. If the price can't sustain itself above 102.025, then it could very well fall back toward support, in alignment with the longer-term range. A drop below 99.25 would help confirm this scenario.

There are reasons to consider both short and long positions, if the proper conditions arise. At the moment, momentum still favors the bulls based on the recent uptrend. From a longer-term perspective, the price hasn't broken clear of the big range it has been trading in. What happens this week could give hints as to the overall direction of the US dollar over the next several months. 

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