Dollar Bulls Are Unfazed By Rate Hike Expectations

 | Mar 06, 2017 06:46AM ET

Investors are unfazed by the surging odds of a Federal Reserve rate hike. While expectations for an imminent rate hike next week have exploded from 40 to 90 percent, the U.S. dollar has reacted fairly moderately to the surge in rate forecasts. On the contrary, the greenback experienced a significant pullback against the euro last Friday and even a slight upward correction against the British pound which has recently been the worst performer. Traders are now concerned about the probability of further bearish momentum in the U.S. dollar this week.

On Friday Fed Chair Janet Yellen has explicitly supported a rate increase if economic progress persists, but dollar bulls ignored the news and took profits on dollar long positions. What followed was a short squeeze which was particularly impressive in the EUR/USD. The euro received additional support from easing fears of a Le Pen victory in the upcoming French election. A poll published Friday showed independent candidate Emmanuel Macron overtaking the National Front leader for the first time in the initial round of voting next month.

However, even if the French election remains the key driver for the euro, we assume that dollar bulls will jump back in at higher price levels in the EUR/USD. Let's have a look at crucial price levels in the daily chart:

EUR/USD
The euro marked a current sideways trading range between 1.0630 and 1.05. Given the fact that the overall bias remains bearish, we will focus on higher price levels to short the euro. In short-term time frames, a break above 1.0630 could increase short-term bullish momentum, driving the euro higher towards 1.0670 and 1.07. Above 1.0715 it could possibly even head towards a test of 1.08. Bears should however wait for prices below 1.0490 in order to sell the currency pair. A next lower support is seen at 1.04.