The US Dollar Index Weekly Analysis-Nov 12th

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The US Dollar Index’s rally was clipped by a mixed Non Farm Payrolls data. Despite the job numbers coming out weaker than expected, the unemployment rate ticked lower to 5.8% while the past two month’s jobs numbers were revised higher. While initially the Dollar Index rallied, the rally became weak as investors digested the mixed data. There was no significant follow through from Friday’s close with the previous two days seeing low volatility and complete lack of any fundamentals to help steer a sense of direction.

Monday’s Labor Market Composite Index or LMCI for short was released which was unchanged from the previous month at 4. However the USD crosses managed to decline on an interim bullish strength but it soon faded with the exception of the Yen.

The major risk to the US Dollar Index this week comes from the US retail sales data to be released this Friday. Consensus calls for the core retail sales data to rise 0.2% after last month’s core retail sales declines by -0.2% followed by the University of Michigan’s consumer sentiment.

From last week’s analysis, the US Dollar index barely moved only to make a new high near 88.25 after which the index quickly declined.

The US Dollar Index

Plotting a new price channel, we can see that the region of 87.5 and 87.4 will be a key level for the Dollar Index. A break of this previous resistance now being tested for support could see price break down from the rising price channel with the next support coming in at 86.84. This significant drop could see a bullish momentum pick up in pairs such as the EURUSD and the GBPUSD which have been stubborn near their yearly lows.

From the daily charts however, it is easy to decipher that a decline to 86.8 could be the most likely retracement as it marks the top of the bullish flag that was formed.

The US Dollar Index

Combining this with the bearish divergence that has formed, relative to the RSI showing a higher high in price but a lower high in the RSI is indicative that the US Dollar index will indeed decline towards 86.8 levels before giving further clues to future price action.

With fundamentals from the US mostly confined to retail sales the weekly unemployment claims and the UoM consumer confidence, most of the direction from the USD crosses are likely to come from the fundamental data from other pairs with key events being today’s BoE inflation hearing and unemployment data followed by the CPI and GDP data from Germany and Europe later in the week.

We could therefore expect to see the Dollar Index weaken towards 86.8 before we shift focus to the week ahead. The temporary declines or correction in the Dollar Index could be seen as an opportunity to look for retracements or corrections in the USD crosses.

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