Will US Dollar regain its bullish momentum this week?

After closing last week in a sharp doji candlestick pattern, which incidentally comes right after a hanging man pattern from the week before, the week ahead could possibly turn out to be quite an interesting one at least as far as the US Dollar Index is concerned.

If you are one of those believers of “gaps are meant to be filled” then the Dollar index chart is worth a treat. The price action last week and the week before saw the Index rally to make a new high at 95.85. Incidentally, there was a pending down gap at 94.79 that was formed way back on 20th September 2003.

And if one looks a bit closer, there is also a major resistance zone between 99.87 – 97.02, clearly indicating that even if the Dollar turns bullish this week, the gains are likely to be limited to the upside, unless of course, we notice price action taking a breather in order to form support, which has been missing in this rally that started since last year.

Fundamentally, the week ahead is relatively light for this week, with only second tier market events until the 11th of February, following which the markets will gear up to the retail sales data for the month of January.

As a matter of fact, last month’s retail sales data disappointed, with a print of -1%, against forecasts of 0.1%. The markets were particularly expecting an upbeat print considering that the main theme doing rounds was that the falling crude oil prices would put more spending money into the US consumers. Sadly, this was not the case as retail sales declined especially in a month considered to be a strong month for retail sales.

In this aspect, besides the print for January, the markets will be looking for any revisions to December’s data, which could tilt the scales in either direction.

Following the retail sales report, there is no more major release, with the exception of the UoM consumer sentiment and inflation expectations. It was only couple of months ago around November last year when the UoM declined to 2.6%, which saw a sharp selloff in the greenback. Even the NFP data that was released that same day failed to contain the declines.

In all probability, there is a high likelihood that this week could also see the Dollar index relatively unchanged, until we head to the week after where a host of US economic data weighs in.

Some of the major releases that are likely to move the markets include Empire state manufacturing Index, FOMC meeting minutes and the Philly Fed Manufacturing index. The FOMC meeting minutes however undoubtedly could see some reaction in the Greenback. Considering that the statement was quite hawkish, the markets would be most likely geared up to see the minutes reflect the same. Any hints of doubt or dissent could potentially throw the markets out of gear considering that there are rising doubts of a delayed rate hike from the earlier expected June to a possible rate hike in August.

All in all, the Greenback stands at a critical juncture, where a continuation of the rally will see a strong test of resistance upwards of 97, while to the downside, as the hanging man pattern shows is likely going to see a lot of room for declines.