When will the Federal Reserve stop raising interest rates?

I wish I knew for sure.

The latest round of inflationary data makes it hard to predict what the Fed might do next.

But I do know that whatever the Fed does next Wednesday, one market will likely move.

In fact, one major currency is rapidly approaching a key resistance level. Once the current trend breaks, it’s likely to set up some lucrative opportunities for my Currency Trader subscribers.

Let me explain…

Last Wednesday saw the U.S. core inflation gauge run hotter than expected. This added to concerns that a still-healthy economy is continuing to put upward pressure on prices.

The Fed is expected to hold rates this Wednesday. But it’s much less certain what they may do in November. Especially if further inflation data keeps coming in hot.

And apart from the stock market, the currency market is also extremely sensitive to anything inflation related.

So today, we’ll take a closer look at the U.S. Dollar Index (DXY)…

The dollar index is nearing a key resistance level. And while there might be a bit more upside in the buck to go, my analysis suggests we should be on the lookout for a larger bearish reversal.

The red line on the price chart highlights the resistance level. Traders should know that resistance is more of an area on a price chart than a specific price.

Sometimes prices will meet a resistance level to the tick and then reverse. But it’s also just as likely that prices will get near that resistance level before you see a major turn.

That’s because savvy traders and investors know that if they can see a key level, so can everyone else. So, they want to get out of the market before all the other traders rush for the exits.

One other clue that shows DXY is getting closer to a reversal is the Relative Strength Index (RSI) at the bottom of the chart. The RSI has just recently established what’s known as “bearish divergence”.

Bearish divergence happens when prices continue to make new highs, but the RSI actually starts trending lower. I’ve indicated the bearish divergence with the blue line on the chart.

It’s clear that there’s starting to be a fair bit of bearish evidence stacking up against the dollar. Once the rally in DXY is complete, it should set the stage for a significant period of U.S. dollar weakness.

This should provide a wealth of trading opportunities over the next year. A clear trend in the dollar is a necessity for good currency trading. So, Currency Trader subscribers should be ready for plenty of new trades.

Now, unfortunately 2023 has been one of the hardest years to trade currencies. That’s because DXY is practically unchanged over the course of the entire year. Where the dollar is trading now is pretty much exactly where it was trading back in January.

Regular Market Minute readers know that volatility makes for the best trading. So, if 2024 sees the dollar start to buckle in a major way, then it’s likely that currency traders will outperform everybody else.

Happy trading,

Imre Gams

Do you intend to take advantage with currency trading?

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.