The Almighty Dollar and the Fed

• Posted by Greg Harmon
• on December 14th, 2016

This afternoon the Federal Reserve Open Market Committee (FOMC) will conclude their last meeting of the 2016. At 2pm EST they will release a statement on monetary policy and then the Chairman, Janet Yellen, will give a press conference at 2:30 pm. You will read countless stories covering the event. it is widely expected that the FOMC will vote to raise the Fed Funds rate at this meeting for the first time in a year, and only the second time since prior to the Financial Crisis.

This is not news though. The world markets have already raised rates. The only thing left is for the FOMC to confirm they agree. And that last point is why it is news. While the stock market has taken off to new highs since the uncertainty surrounding the election has cleared, and bond yields are rising, the Dollar has been sitting and waiting for confirmation. The chart below tells the story.

The US Dollar started moving higher in mid 2014. It reacted to the fact that the Fed had started to ween markets off of stimulus. But then it stopped. The rise halted technically at important levels, over the 50% retracement of the move from the 2002 high to the 2008 low and just short of the 61.8% retracement. This was also at about the target of the break from the symmetrical triangle consolidation. It has churned in a sideways motion on the chart for nearly 2 years since then.

The Technical picture looks very bullish long term. The Dollar is at highs, and momentum is bullish. The RSI is rising and the MACD is about to cross up while in the bullish zone. Perhaps the Dollar is the only thing waiting for confirmation that the FOMC will agree to raise rates. A move over 102 would seem to be confirmation and then it can resume its charge higher. It has had 3 consecutive 7 year periods before 2014. A long rise, followed by a long fall and then a long consolidation. Will the current rise continue into 2021, for a fourth 7 year period and a full retracement to the 2002 high?

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