Weekly USD Index Analysis for November 26th
It is quite evident by now that the Dollar Index has been struggling to break new highs. Fundamental data from the US continues to be mixed but the main indicators have managed to consistently beat estimates. Despite an upbeat GDP numbers for the third quarter the fact that the USDX has failed to capitalize on the better than expected numbers is a hint that the Dollar Index is now easily susceptible to weaker news releases regardless of their impact in the markets. A good case in point was that the Dollar index reacted more to the bad consumer confidence reading in compared to a bullish GDP revision.
The daily charts for the Dollar Index, in comparison to the RSI show how the bearish divergence has been building up over the past few weeks. The most recent higher close at 88.41 resulted in the RSI printing a lower high for the second consecutive time. This behavior is usually typical just ahead of prices collapsing. Based on the divergence that is being formed, we could therefore now expect the US Dollar Index to decline lower towards 86.78 handle. This decline would also result in a test of the major trend line as well and if prices manage to bounce off 86.78, the Dollar Index could well resume its bullish rally.
In the H4 charts below we notice that the Dollar index has been trading in a ranging phase, bouncing off the highs and lows between 88.34 and 87.5 and the most recent price action breaking outside of the lower support line of the price channel. The Dollar index could either now retrace the losses to retest the break out or could possibly resume its decline back to the lower end of the range at 87.50 which will be a key level to watch out for.
A break below the support which has managed to hold prices above 87.50 could see a test to the next support at 86.84 – 86.78 level which was barely tested as price initially rallied quickly above the resistance level.
Therefore, from the above technical perspective, we could possibly expect to see the Dollar end lower towards later this week.
Another fact to consider would be the end of month profit taking as well which could put additional downward pressure on the Dollar Index in the near short term. However, with that being said, economic data will again pick up steam heading into the month of December (next week) with key events including the monthly NFP data on the tap next week followed the FOMC statement due for release ahead of the holiday season.
Combining the above factors, the Dollar index thus looks vulnerable at least heading into December which should see some bullish price action in pairs such as the Euro and the British Sterling, both of which have managed to remain resilient staying modestly higher above their yearly lows. This price action should in the larger perspective enable traders to potentially add more positions to their USD longs.