US Dollar Index Weekly Analysis – 05/02
The US Dollar Index closed last week on a very bearish note, gapping higher from the previous week’s close only to end the week bearish. In the process, the Dollar index has formed a hanging man type of a candlestick pattern, depending on your data feed. The hanging man pattern, especially with an opening gap is indicative that this could possibly turn out to be a strong reversal pattern. Under usual circumstances, we would have to wait for a bearish close this week as well in order to confirm the reversal.
So far, price action in the Dollar index has been bearish, although we are seeing some signs of the Dollar index easing from this week’s low.
The chart below depicts the weekly chart for the Dollar Index.
When looking at the daily charts, we notice that price action is at a very interesting juncture. From the start of this week, after the bearish reversal pattern also noted on the daily charts, price action is currently trading near a short term trend line. We also notice the appearance of an inside bar, which is indicative that a possible breakout is imminent. But as with any inside bars, the breakouts are hard to call especially with price action likely to break out in either direction.
Going by the weekly and daily analysis, which puts the bias to the downside, we are more favorable for a breakout to the downside which will be a clear confirmation of a reversal in place. However, should price breakout to the upside, the next key level to watch will be the highs made so far at 95.85. If the price fails to break above this high, we could still remain bearish albeit expect a very choppy session.
While it would be a hard call, if not today, then at the very least, tomorrow, is when we could expect the scenarios to play out bearing in mind the NFP numbers for the month of January 2015 due tomorrow.
From a fundamental perspective, the current weakness in the Dollar Index does not exhibit a trend reversal but rather a correction. In the longer term, the Dollar index is still in an uptrend and likely to continue to do so.
With major central banks across the globe cutting interest rates and providing lower forecasts on account of falling inflation, surprisingly, the US Federal Reserve has struck a hawkish tone, besides also considering the fact that the Greenback has grown so strong that it has started to show its effects in economic data such as Factory Orders, Durable Goods orders and even in the earnings reports from the equity markets.
The next FOMC meeting is scheduled for March, which is when we would also get to see the staff economic projections. While there is a subsequently long period of waiting time, later this month, the Fed will reveal its meeting minutes, which if it shows any signs of doubts of a rate hike, could further speed up the corrective move in the US Dollar.
