FxWirePro: Dollar index likely to test sellers around 95 area

The performance of the dollar improved since September after six months of consecutive decline, which was dollar’s worst showing in H1 in more than two decades. The dollar index, which is the value of the dollar against a basket of currencies reached most of our downside targets except the extended 90.3. A correction was due as the dollar index reached 91.1 area, while the Relative Strength Index (RSI) as shown in the picture declined to 13, which suggested extreme positioning.

However, since the FOMC meeting in September, the market has re-priced hike probabilities and the hike odds are still rising as the Fed explicitly indicated an upcoming hike in December and the latest NFP report showed that wages increased at 2.9 percent y/y, a much faster pace than originally anticipated. The performance of the dollar improved and it reached 94.2 area last week. Though it is down this week, we expect that bulls are likely to push dollar a bit higher to test the waters around 95 area.