After another week of strong sell-off, the US Dollar was seen recovering from the declines, by Friday’s trading session. The US Dollar Index, which touched a low of 95.28, last seen four months ago managed to post a reversal near the 95.50 minor support. However, the Dollar Index is not out of the woods yet as prices will likely struggle in the previous strong support zone of 96.5 – 96. Only a daily close above this level will indicate a near-term correction to the upside in the Dollar Index.
All things considered, the rally in the currencies especially the Euro, Yen and Gold was rather quick and strong. With little to no support being established in the rallies, a moderate recovery is on the cards. For the Dollar Index, if prices indeed manage to close above 96.5, we could expect a new wave of correction, which should technically see a short rally to the previously broken support of 98.5 – 98 region, which is very likely to be tested for resistance.
This short-term pullback should technically see the Euro and the Yen weaken, including Gold as well. Today, the US monthly retail sales numbers provided the first positive data. Headline retail sales for the month jumped 0.20% against estimates of 0.10% increase while the core retail sales for the month excluding auto managed to meet estimates of 0.10%. There were some upward revisions to previous month’s data with the headline retail sales being revised higher from -0.10% to 0.20% while the core retail sales numbers are adjusted to 0.10% from -0.10%. The positive data managed to add some fundamental support to the Dollar as well. US import prices were weak, falling -1.10% in January less than the expected -1.50% decline.
The 4-hour chart for the US Dollar Index, combined with the technical levels off the daily chart shows prices currently looking to break higher after forming an inside bar on the 4-hour chart time frame near 95.74 – 95.28. A successful break higher, combined with the bearish divergence on the Stochastics oscillator could potentially see the correction resume. Watch for a possible pullback to this newly forming correction as prices move closer to the falling trend line connecting the highs of 99.88 and 98.95.
Looking ahead, next week will see the FOMC meeting minutes being released. The January’s FOMC statement was dovish and going by Fed Chair, Janet Yellen’s testimony this week, the meeting minutes could continue to paint a dovish picture which could keep the US Dollar pressured to the downside. US inflation numbers are also due next week which comes in as an additional risk to any rallies.
For the moment, the Dollar Index is likely to remain supported above 95.50 and if we get to see a bullish close above yesterday’s high of 95.89, there is scope for a move higher, but will be confirmed only on a convincing close above the 96.5 support.
