The US Dollar Index is still trading within our plan outlined over the past few weeks. Last week, the US Dollar Index retraced all the way up to retest the 100.0 barrier.
The Index closed last week’s trading on Friday exactly at that resistance. However, the index gapped lower on Monday following the outcomes of the first round of the French elections, declining all the way to 98.90’s, which remains a solid support so far.
USD Index Below Key Moving Averages
Looking at the daily chart above, we can notice that the Index is now trading below its major Moving Averages, including the 50,100 and 200 DAY MA’s.
Moreover, the 50 DAY MA remains below the 100 DAY MA, which keeps the bearish outlook for the index in the medium term.
On Monday, the index opened the week below the 200 DAY MA. However, since this is a trading gap, we can’t rule out the possibility for another retracement to the upside.
Yet, the main point here is that the entire moving averages are turning lower even further, which increases the possibility for a change in the trend in the longer term as well.
Oversold Technical Indicators
Looking at the daily chart once again, the technical indicators are now heavily oversold, including the Stochastic and the RSI.
RSI is now trading around 35.30;sm while Stochastic is below 20 and crossed over to the upside, which keeps and support the possibility for another short-term spike, before the downside trend resume.
As noted before, as long as the index continues to trade below the previous top seen at the beginning of April, the bearish outlook is likely to remain unchanged.
On the downside view, a breakthrough this week’s low around 98.90, would lead the downside pressure to accelerate even further, while the next immediate support stands at 98.15.
What’s Next
After Monday’s sharp gap lower, we believe that this gap should be filled once again, just like the other trading gaps that we saw back in February of this year and December of last year.
This means that the index is likely to visit the closing price of last Friday which stands at 99.97 close to 100.0 barrier again.
There is no reason to be very optimistic about any possible rally, as such move is likely to be short-lived ahead of further key economic releases and events later this week.
Fundamental Catalysts
This week, there are only a few economic figures will be released from the US across the week. However, volatility is likely to remain on the rise.
One of the catalysts might come in from the long awaited tax reform plan by the new administration in the US.
The US president Donald Trump said on Twitter that he will push for another healthcare plan and will announce the Tax Reform plan on Wednesday, without mentioning when the house will hold a voting session.
If our healthcare plan is approved, you will see real healthcare and premiums will start tumbling down. ObamaCare is in a death spiral!
— Donald J. Trump (@realDonaldTrump) April 24, 2017
So far, there are a lot of talks about sharp tax cuts. However, this might lead to delay some of the projects that he promised during his presidential race such as the wall with Mexico.
On the other hand, all eyes will be on the GDP data for the first quarter of this year, which set to rise by 0.6% only. Such outcome would keep the drag on the Federal Reserve not to raise rates at least until the end of the first half of this year.
In return, the downward pressure on the US Dollar is likely to resume. Therefore, selling rallies remains the preferable strategy in the short and the medium term.
