After reaching intraday highs not seen since December 2017, the U.S. Dollar Index Futures lost ground on Thursday after modest inflation data released by the Labor Department.
According to the Labor Department, annual inflation rose 2.5% in April which met expectations, however monthly inflation rose a mere .2%.
This closely watched fundamental data supports the Fed’s intentions of introducing two additional rate hikes in 2018 tampering the notion of more aggressive monetary policy tightening.
The greenback has been on a strong bullish run since mid-April pushing into positive territory for 2018 and simultaneously breaching its 200 day moving average. The run is supported by a rise in interest rates making the dollar more attractive to investors.
Technical traders may proceed with caution in looking long on the Dollar and consider it in overbought territory. When examining the RSI indicator, which is a measure of price movement, the dollar is well above the traditional overbought benchmark of 70. History shows when the dollar has traded in an overbought landscape, the market responded.
The above chart, created for free with the award winning NinjaTrader platform, showcases the daily U.S. Dollar Index Futures. An RSI indicator with regions highlighted as it breached or touched the 70 value line demonstrates the behavior of the instrument when trading in overbought conditions. Additionally, trend channels accompany the region highlights to clearly validate trend direction. A 200 period Simple Moving Average is used to further confirm the long term trend.
The RSI and trend channels are just a glimpse of the indicators & drawing tools available in the NinjaTrader platform. Download NinjaTrader for FREE today!