Is the Dollars Rise Over?

The dollar index has experienced its first move out of a very strong upward price channel it has been confined within during its current rally. Could this be the start of a major correction? Or perhaps this could be a small consolidation period before a continuation of the rally.

On the more recent timeframe, using 1-hour candles, you can see a downward price channel. This resulted from less hawkish statements from Fed officials and a technically overheated rally. The recent CPI date release rallied the dollar from the bottom up to the top of this channel, essentially breaking out of resistance. Could the short-term dollar weakness be over?

If inflation continues to grow unsustainably, then the Fed will likely need to hike rates further. This will increase demand for dollars, which adds strength to the dollar. If the recent drop in oil prices continues, then inflation will more than likely increase at a slower pace. This should ease the Fed’s inflation woes, possibly decreasing the likyhood of another rate hike and lessening the strength of the dollar. If rates remain constant, then other factors will determine the path of the dollar

If and when eonomic conditions in other countries improve, then demand for foreign currencies relative to the dollar will increase. This will add to the weakness of the dollar. But any economic downturn or recession outside of the US will herd forex investors back into the dollar due to its safe haven status. This would add strength to the dollar.

Geopolitical tensions, like war in Ukraine or Isreal, add to the uncertainty in currency markets. This would also influence forex traders to flock to safe haven currencies like the dollar.

Personally, I think the majority of the dollar rally has passed. There may be more upside in the dollar, but I can’t see any reason for substantually more upside just yet. The dollar has been consolidating all of October. Maybe if the macro picture changes a little more, or the Fed signals higher or lower rates, then we might see the dollar pick a direction.

As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.