Market Overview Technical Analysis

Dollar Index Rallies Amid Fed’s Rate Hike

  • The US Dollar has rallied 18% this year due to an aggressive interest rate policy.
  • Correlation between the Dollar and the Equities Futures markets.
  • Technical Analysis on the US Dollar.

Dollar Likely To to Remain Stronger

The US Dollar has rallied this year by more than 18% due to the aggressive policy outlined by the federal reserve. Yesterday’s 75 basis point rate hike sent the Dollar higher by 1.5% from its session lows against a basket of currencies. Many economists agree that the rate hikes will not stop here; the Fed may slow down slightly, but we are likely to see interest rate hikes continue unless the US economy takes a turn for the worse.

US Fed Funds Rate (2018-2022)


Correlation Between US Dollar & the Equities Market

The rise in the value of the US dollar has had a slightly positive correlation with the movement of the S&P 500 Index over the last 20 years. In other words, the S&P 500 rises roughly 40% of the time when the value of the Dollar rises. It’s almost inevitable that the strengthening of the Dollar will lead to high stock prices as US dollars are required to purchase stocks. This is not what we have seen this year, as the Dollar is up 18%, but the S&P 500 is down 22% year-to-date.

Technical Outlook

The Dollar has a strong uptrend line on the daily time frame that has found support 4 times successfully, leading to a new rally. The gaussian channel is trending perfectly, with each retracement into the indicator getting bought up quickly. The yearly high of $114.7 is likely to be tested in the next few days if the rally continues from here. At the moment, there is no real bearish case for the US Dollar because of the Fed’s monetary policy stance, and the popular quote rings true right now – ‘Do not fight the Fed.’

Dollar Index Daily Chart


As the Fed continues to raise rates, the US Dollar can go only one way, which is up. The correlation between the Equities futures markets and the Dollar has failed to play out this year. Gold and other world currencies will likely drop as the Dollar continues to strengthen.