Forex Trading Library

US Dollar Index Weekly Analysis – 23/04

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There is no doubt about the fact that the US Dollar Index has considerably slowed down its bullish momentum. This is even further evidenced by the fact that we are not seeing more bearish candlesticks being formed, along with longer durations in the short term corrective declines. The question that comes to mind is whether the US Dollar is losing steam and does this foretell a larger term correction coming?

For one, investors are starting to get quite frustrated with the US economic data. No doubt, Q1 GDP growth is definitely poised to be a weak print and as evidenced by last week’s price action, the US Dollar is seeing a larger sell off on bad economic news, while struggling to push higher on positive economic data. This is perhaps one of the earliest indications that unless we see some major tier-I market moving events beating estimates, the US Dollar is likely to have a tough time to rally.

The 4-hour chart below explains the price action since last week.

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US Dollar Index, 4-hour Chart, 23/04

 

The bearish flag that was formed near the support at 98.95 was quickly broken and price declined promptly towards the next major zone near 98.15 through 97.75. We notice price has been hovering in this region for quite a while before attempting to break out higher.

The next big hurdle for the Dollar Index is to test the broken support (previous support/resistance level) near 98.95. Failure to break above this resistance would be our second clue of an impending decline coming. The first clue was the failure to test the 100 psychological barrier, which saw price test the level in just one session before breaking down lower.

The median line is most likely to provide clues into the path of the price action as we see the channel being very narrow and could potentially break out in either direction on most likely market news.

From the daily chart timeframe we notice that price is still hovering near the highs but has been trading close to the trend line. A break of the trend line from the daily charts will be a clear confirmation of a decline lower towards 96.33 followed by 94.10 through 93.5 levels as the next support.

There is also a clear evidence of the bearish divergence to the Stochastics oscillator starting to kick in. The divergence however points to much larger correction, down to 90.36 as a conservative target after the break of support at the region between 94.10 through 90.95

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US Dollar Index – Daily Chart, 23/04

 

On April 29th, the advanced GDP numbers will be released and a few hours later the FOMC statement will be out as well. Both these events are very likely to coincide with what could perhaps be the confluence of fundamental news events along with the technical analysis and could kick start the correction in the US Dollar.

Regardless of the outcome, USD traders do have some clear options available for them. Unless the psychological barrier at 100 is broken, the US Dollar does not have much room left to the upside, and a failure to break above 98.95 could pave way for a period of short term correction in the USD cross currencies.

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