Dollar strengthened as solid bank results lift Fed hike expectations

Dollar strengthened more than half percent yesterday. It bounced from the one-year low after strong earnings from some of Wall Street’s banking. Giants diluted concerns about the sector, raising expectations of another interest rate hike by the Federal Reserve.

Friday saw the release of a strong set of first-quarter 2023 earnings. From JPMorgan Chase, Citigroup , and Wells Fargo, lifting concerns about the banking crisis that unfolded last month.

Additionally, Federal Reserve Governor Christopher Waller called for more monetary policy tightening to reduce persistently high inflation.

The dollar index bounced off a one-year low against a basket of currencies on Friday. After some March retail sales components were not as weak as some economists had feared. While a key Federal Reserve official warned that the U.S. central bank needs to continue hiking interest rates to bring down inflation.

The data showed U.S. retail sales fell more than expected in March. As consumers cut back on purchases of motor vehicles and other big-ticket items.

Core retail sales, which correspond most closely with the consumer spending component of gross domestic product, slipped 0.3% last month. However, despite March’s fall, the gains in January and February put consumer spending firmly on track to accelerate in the first quarter.

Other data on Friday showed U.S. consumer sentiment inched up in April, but households

The dollar index gained 0.57% on the day at 102.1440, after falling to 100.78. It remains on track for its fifth consecutive down week. it fell to a new one-year low of 100.78 in the wake of the U.S. producer prices index. Which recording the biggest drop since the start of the pandemic.

Technical View

After dropping towards one year low 100.7880, the dollar index witnessed sharp pullback . It recovered more than half percent and settled at 102.0950, up 0.51% yesterday.

A bullish engulfing pattern was noted on the daily chart, which resulted in half percent gain yesterday. Intraday price action resulted in formation of a long bullish candlestick which is still   creating a probability for a short time pullback in the dollar index.

Further, RSI 14 and its 9 SMA also turn positive which indicates for reversal.

All above the technical aspects are indicating a short time pullback before the next downside move. A Break above 102.20 will lead upside momentum towards 102.60-102.85 in days to come. Else, any downside momentum towards 101.60-101.55 will witness pullback in near future.

Alternatively, on the downside, crucial support is seen at 100.75 and a break below only, dollar index will plunge. It could test 100.10-99.55.