The Dollar Index was caught in a volatile move this week as the flash crash or Black Monday sent the Greenback to post a 7-month low. However, the index managed to retrace its losses just as quickly as the index fell to 92.52 and recovered from the sharp declines with little to no effort. In terms of economic releases, the Greenback got a sharp boost as the second quarter GDP was revised sharply higher to 3.7% from 2.3% initial estimates. The rebound in the GDP was attributed to an increase in consumer spending, fixed investments and exports. The upbeat GDP report no doubt gave the Greenback some extra boost amidst falling conviction if the Fed will be able to hike rates in September, which technically still is an option. Core PCE, the Fed’s preferred gauge of inflation remained unchanged at 1.8%.
Overall, the US Dollar index looks poised for further gains in the run up to next week’s big events including the monthly unemployment data which will be the final employment report before the Fed’s September FOMC meeting and one which could potentially swing market sentiment in either directions should we get to see a further drop in unemployment rate.
US Dollar – Technical Analysis
On the daily charts, the US Dollar Index, fell to the support at 93.4 after a break below 96.90 level of support. The sharp retracement off the decline to 93.40 is likely to see the rally continue on to retest the 96.90 level. If this level now turns to resistance, the US Dollar Index could potentially see a new leg in decline to the downside. Adjusting the median line tool, we notice the price action in relation to the median lines. Minor resistance comes in at 96.13 region followed the main resistance level at 96.90. Should any of these levels manage to contain the rally, the US Dollar Index could potentially see another test to the downside with a medium-longer term break out from the median line.
Looking at the 4- hour chart for the US Dollar Index, we can see that the support/resistance levels are more evidenced. Price action is currently in the support/resistance zone of 95.85 – 95.6 region and looks to be consolidating at this region for a while. A break to the upside will see a potential test to 96.55 ahead of the major resistance at 97.35. To the downside, the support levels come in at 95 and back to 93.25 the previous lower close that was formed.
Plotting a minor trend line connecting the higher lows, there is a possibility of a break of this rising trend line, which will see a retest to 95 in order to establish support here. In such an event, the US Dollar could possibly consolidate at the current levels ahead of a break out in the near term.
Looking forward, there is no major market shaping events scheduled for today meaning that the US Dollar Index could potentially move into a sideways holding pattern ahead of the important news releases next week including the monthly non-farm payrolls report.