Dollar bulls seek Fed guidance for clarity

NEW YORK — After a confusing week for dollar bulls, a closer look at some of the technical underpinnings of the greenback paints an even more mystifying outlook for the Trump reflation trade.

Popular analysis such as the Elliott Wave theory suggests the rally is sustainable in the shortterm. Further out, the same measures raise questions.

According to the theory, the daily charts show completion of wave 1 at 111.60 yen entering wave 2, a corrective wave which points to potential gains up to 115.96 before resuming wave 3, which will reinforce the dollar’s downtrend from mid-December.

While that may not convince non-believers in technical analysis, it’s no more confusing than the dollar’s reaction last week. The greenback was little changed even after Federal Reserve chair Janet Yellen’s more hawkish tone bumped up bets on a March interest rate hike, and a steeper-than forecast increase in US consumer prices signalled inflation in the world’s largest economy is right where the central bank wants it.

“As confidence in the dollar weakens with more articles and headlines like those in recent days and weeks, a tipping point is on the horizon at which investors collectively realise they are at significant risk of being on the wrong side of a potentially large move,” Ulf Lindahl, CEO of A.G. Bisset Associates, said in a recent note.

Investors counting on a continuation of the rally in US equities and the dollar since Donald Trump’s presidential election now look toward Wednesday’s release of minutes from the Fed’s February 1 policy meeting for a further catalyst while they wait for the administration to provide more details of its promised growth agenda.

Long-term charts suggest the greenback has a lot of room to fall.