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An Options Feast As Dollar Index Caught In The Cross Fire Between The Fed And The Markets -

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    • An Options Feast As Dollar Index Caught In The Cross Fire Between The Fed And The Markets
Feb, 10th 18:38

ob-market-outlook

The Dollar Index framed a fresh 4 month low on Tuesday as it slipped to 96.55, which has continued on Wednesday to hit a new low at 95.91, in anticipation of the testimony and live semi-annual appearance of the Fed Chief ​​ at the House Committee on Financial Services.

The Dollar index stumbled on Tuesday ​​ and early Wednesday, as Fed Chair Yellen said in her pre prepared statement to committee that a different path for the Federal Funds rate could become appropriate,​​ if the economy were to disappoint. So far Dollar Index has tumbled 3.26 percent in February ,2016.

The Yellen remarks indicated that while the US economy is on a path heading towards stability and growth, external factors such as the uncertain situation in China, in the Chinese Equity Markets as well as the Exchange Rate policy vis-a-vis the Yuan and US Dollar, as well as slowing growth in Europe and concerns about the banking and financial services sector, could mean that the FED may have to take these factors into account when deciding on the next hikes.

The Fed is still suggesting that there shall be moderate interest rate hikes in the coming months, but the markets seem to be suggesting that the possibility​​ of such action may be low. Should such a situation come to pass and interest rates rise, a lot of volatility can be expected in the market as the current direction of markets shall be reversed in a significant way and a large horde of positions shall be unwound.

Fig: Dollar Index Daily Technical Chart

Dollar index rebounded 0.27 percent today after hitting the 96.50 support yesterday. It broke the strong support at 96.70 on Tuesday which may turn into a strong immediate resistance on the Daily chart. If​​ the current support provides a toehold, the USD Index may retest the 96.70 level. ​​ Bearish outlook prevails as the price is below moving averages and Stochastic is indicating strong bearish momentum. Any retracement will be welcomed by sellers to push it lower towards 95.00. Conversely, if it succeeds to breach 96.70 with confidence, buyers may push it further towards 97.20.

Trade Suggestion

Buy Digital Puts at 95.65 and Digital Calls at 95.10, or on a break above 97.20

 

 

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