Greenback jumps to a two-month high on Supercharged Fed Bets. Traders takes new long positions.

The dollar surged against its biggest peers Tuesday after hawkish comments from Federal Reserve Chair Jerome Powell added fuel to bets that officials will hike interest rates by a half-point at their March policy meeting.

The Bloomberg Dollar Spot Index climbed more than 1% to a level last seen Jan. 6, when the gauge hit its 2023 high. The move came after Powell said the Fed is likely to raise rates higher than previously thought and is prepared to accelerate the pace of hikes if needed. 

The Treasury yield curve flattened, deepening the inversion of the keenly watched 2-year to 10-year gap to a level unseen this cycle, as shorter maturities came under increased pressure.

Traders took Powell’s remarks as a signal that the Fed may break from the quarter-point increase it opted for last month, following hot data on jobs and inflation. The markets now see a peak Fed rate of about 5.6% in the second half of the year. The dolllar index in Tuesday trading notched the biggest gain since Feb. 3.

Investors will now look to US labor-market data due Friday to determine whether the strength seen in the January figures was a one-off or a more entrenched trend, fueling inflation further and prompting even tighter policy.

The Fed’s next decision is on March 22. 

“If the coming data points to a 25 basis-point hike, USD can hold in recent ranges,” said Alan Ruskin, chief international strategist at Deutsche Bank AG. “If they do 50 basis points or look very likely to do 50 basis points, it sets up for a more decisive USD stronger range.”

Dollar Index Daily Chart

Dollar Index tests the resistance at 105.60, the formed strong price action with an engulfing bar gives signals for a break of the level and a new upward movement to the main resistance at 106.25/106.60 – 38.2 fibo level and 200 MA. The Demarker Oscillator rebounds from the overbought zone, marking the bulls’ strength. Strong Nonfarm Payrolls will provide a new bullish momentum of US currency and a possible break through the resistance zone, which will send the quotes toward the levels at 107.30 / horizontal resistance and the trendline of the current ascending channel.

Alternatively:

A failed attempt to break the strong resistance zone 106.25/106.60, also supported by weaker data on the US labor market and the exit of Demarker from overbold will initiate another short again to the lower diagonal support of the trend at 104.70.

Market Profile

The current Point of Control is formed exactly on the upper border of the previous Value Area – a key level for forming the next movement. The single print that is currently forming on the last TPO Projection Line hints at the potential for price migration in an upward direction. The formation of a new single print at 106 will trigger purchases.