The US Dollar Index remains within our projected plan since almost two weeks, with attempts to break above the key resistance which stands at 101.80 to 102.0.

Last week the US Jobs Report was actually the catalyst for the survival of the bearish pattern, which is the head and shoulders on the daily chart as shown in the image below.

However, more catalysts are still needed to clear the way for another leg lower and to confirm the bearish pattern.

The Federal Reserve Catalyst?

The Federal Reserve might be the right and the most important catalyst of this potential pattern. Some would say that raising rates means a stronger currency.

This is true, but again, the market has already priced in such move. The market will always price in such decision in advance.

The Fed Fund Futures spiked to 100% (chance to raise rates) since more than two weeks, which led the US Dollar index to rebound recently from its 100 barrier all the way to 102.0.

Dovish Hike

This is what most likely scenario, the Federal Reserve might raise the rates by 25bps. However, the Fed will always try to cap USD gains as much as possible, as rising USD is hurting growth, inflation and its against the new administration’s plans

Therefore, the Federal Reserve might need to show some dovish remarks and actions. This can be done by cutting growth and inflation estimates when they publish the economic projections today.

This would be enough for the market to understand that March’s rate hike might be the last one for the first half of this year. In return, USD buyers are likely to disappear.

Head And Shoulder Pattern

The Head and Shoulders formation is still in progress, and there is no guarantee that this formation might be completed. Yet, this is what the current fundamentals and technical analysis are suggesting.

The left shoulder stands at 101.80, while the Head stands at last year’s high at 103.40, and now we are still waiting for the second shoulder to develop which is also stands between 101.80 and 102.0.