The US Dollar Index opened today with a small up gap and current price action looks likely for a test to the major resistance at 91.23. Price action at this level will be critical as we notice that in the daily charts, there is a continuing divergence to the RSI level, indicating a possible corrective decline towards 86.80.
On the H4 charts, we notice the break out from the ranging price action we saw during the holiday period. The level of 90.34 through 90.06 will be critical we suspect there is a support/resistance level being formed here. If the divergence should start the correction in price action, then this level will be critical as a breach of the support could pave way for declines in the Dollar Index, with the next support levels coming in at 89.20 followed by 88.25. Only a breach of these two support levels will see the Dollar Index resume lower towards the eventual correction to 86.80.
The weekly chart however shows a continuing bullish momentum in the Greenback, after a bullish engulfing pattern was formed two weeks ago. The monthly chart also shows a continuation of the bullish momentum in the Greenback, which indicates that the corrective decline we expect will take a bit longer to start.
With the New Year celebrations done with, the markets will be looking returning to normalcy, resuming full trading starting next week, which will see a lot of economic data being released. Of special importance will be next week’s ADP and Nonfarm payroll data along with the Fed’s meeting minutes for December, all of which could bring some market volatility and could weigh in on the Greenback. The Fed’s meeting minutes could of particular interest to market participants as investors look to the minutes especially in regards to the Fed’s discussions on urging markets to be ‘patient’ as well as the number of members who voted in favor of interest rate hikes. The tone of the Fed’s minutes could potentially set the general theme at least until the next FOMC meeting. Should the minutes strike a dovish tone, we could expect to see a selloff in the Dollar Index, which would possible work in line with the overall technical analysis theme as well.
The Dollar Index’s strength will also weigh in on Gold futures, which shows that the precious metal is trading directly based off the broader theme from the Greenback. Previous gold futures technical analysis continues to show that there is a pending corrective move to the upside before the larger bearish trend is resumed. Bearing the above factors in mind, we would therefore approach any USD long positions with caution as markets will be very acutely tuned to the economic developments from the regions and especially looking to numbers that could eventually be either supportive or disruptive of the Dollar Index’s strength.
