The dollar rallies ahead of the FOMC meeting (but will it after?)

Read Matt Well’s FOMC preview: 25bps pencilled in, but balance sheet and dot plot updates key

The two key drivers behind the dollar’s strength of late have been safe-haven flows due to the crisis in Ukraine, and revived expectations of multiple hikes this year. A hike tomorrow is all but confirmed, so traders will keep a close eye on any revisions to the Fed’s economic outlook and the dot plot. Comments from Fed members generally point towards them staying on a cautious path of multiple hikes, but that essentially means futures hikes will be decided on a per-meeting basis and therefore not a dead cert.

Everything you need to know about the Federal Reserve

From a trader’s perspective, it should be noted that the dollar has rallied to a near 22-month high ahead of the meeting. Therefore, the most exciting move would likely be if the Fed provided a dovish/cautious hike tomorrow as it would see quite a few pre-emptive longs unwound (assuming they do not hike at all, but that is very unlikely). But at the same time, we need to appreciate that the dollar is in an uptrend, and even if prices do pull back there are decent levels of support to consider for bullish setups in future.

In today’s video we compared the US dollar index to the Fed’s target rate, then take a multi-timeframe look at DXY itself to highlight key levels.

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