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A Look at the US Dollar Index ahead of FOMC Risk

As we should all know by now, tomorrow will be an important day for the USD. The greenback has been rallying because of hawkish expectations from the FOMC in regards to when it will be raising interest rates.The time-line is currently for mid-2015. Strong Q2 data has been followed by less impressive data in Q3, but the underlying economic recovery still can call for an earlier rate hike. 

If Janet Yellen removes the word considerable to describe the amount of time needed to keep the federal funds rate at near 0%, then we can say the statement is relatively hawkish, and the USD might still have fuel to rally. 

When we look at the weekly chart, however we can see that a key resistance is just ahead - the 2013-high of 84.75. We will probably need a hawkish FOMC statement to push the USD above this high. 

USDX Weekly Chart

Now, if the fed delivers and we do get an initially bullish push to 84.73, we should be careful. If price retreats from 84.73 and ends up unable to break above it by the end of the week, the bullish outlook might be in trouble, and the USD might be in for a meaningful consolidation, which has downside risk in the short-term to 83.00. 

Now if price does break above 84.73, and above 85.00 the USDX could be signaling a long-term bullish outlook. When we look at the monthly chart, we can see that the USD has been falling even before the financial crisis. Since the crisis, we had one more dip, and then a multiple-year triangle consolidation. A break above 85.00 could signal a break above this triangle, and open up a bullish outlook for the long-term.

USDX Monthly Chart