The dollar index is poised for the third week of strong gains after falling to lows of 91.88. The next big event risk comes from next week’s revised GDP estimates
The US dollar is poised to close the third week of consecutive gains after price briefly fell to an 18-month low to 91.88. The impressive turnaround in the dollar index came as economic data continued to improve steadily. The hawkish Fed minutes report was the icing on the cake for the US dollar which extended its gains. The technical flows in the dollar index signal a possible shift in sentiment in the greenback which has been in a steady decline since the onset of the first quarter. Next week, the US Q1 GDP is up for a second revision, and an improvement from the initial 0.50% reading could bode well for the dollar.
The gains in the dollar saw the yen weaken, which is likely to keep the BoJ on the sidelines for now. The euro has also fallen to lower levels after trading above 1.140 few weeks ago. Last week, inflation data from the US beat estimates, while at the same time the eurozone inflation data saw the region falling back into deflation. With the divergent monetary policies, renewed bearish sentiment is likely to prevail in EURUSD as a result.
US Dollar Technical Outlook
The weekly chart for the dollar index shows prices breaking above the 94.50 – 94.0 support level. A weekly close here could signal further upside with the breakout of the trend line seeing extended gains towards 96.50. There is a possibility that the dollar index could briefly slip back to the support level at 94.50 – 94.0 ahead of further gains. The potential head and shoulders pattern on the weekly chart is worth keeping an eye on. Above 96.50, the next main resistance at 98.50 – 98.0 will be an interesting level to watch for.
On the daily chart with prices clearing above 94.50, we expect to see a pullback towards the broken resistance level to establish support. There is a risk of a decline towards 93.25 – 93.0 however. As long as prices are supported above either of these two levels, the US dollar index is likely to see further gains with the next resistance at 96.50 – 96.0 coming into focus.
