USD Index: Bearish Outlook is Here to Stay

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The US Dollar Index got a notable push since the middle of last week on the back of some positive economic releases.

However, the biggest push came in from the US 2nd GDP estimate, which showed a revision to the upside towards 1.2% instead of the initial reading of 0.7%.

Such reading brings back the possibility of another 25bps rate hike by the Federal Reserve during its upcoming meeting in June.

Despite that, there are still many economic figures which will be released over the coming days, and that should give us more clues on such possibility.

Short-Term Retracement?

Looking at the daily chart, the US Dollar index has been rising for the past three days, in addition to today’s earlier spike across the board.

The index is now trading well above its 96.80 support area and continued its rally all the way up to 97.80 until this report is released.

The Index has been declining since the beginning of the year, with gradual pace, the current upside retracement is still considered as a short-term retracement to the upside before the downside trend resumes.

The technical indicators are also supporting the idea of such retracement, both indicators are heavily oversold and crossed over to the upside, which increases the chances for another spike higher ahead.

What Are The Levels?

Looking at the daily chart once again, the first immediate resistance stands at 98.0, which is the former resistance area back in October of last year.

The second level that everyone should keep an eye on stands at 98.30’s, which represents the broken trendline, is likely to hold, where sellers are likely to appear once again.

Fundamental Catalysts

In the coming few days, traders need to keep an eye on the upcoming economic releases throughout the week.

But the most important days to watch are Thursday and Friday, where we will be watching the ADP Non-Farm Employment Change on Thursday and the US Jobs Report on Friday.

The estimates are somewhat encouraging; the ADP Non-Farm is expected to add more than 200K, while the Jobs Report might come in softer in May compared to April’s outcomes.

However, what matters the most, are the average wages, which were disappointing for the past few months. Another disappointment would likely keep the Federal Reserve away from raising rates.

In return, the US Dollar is likely to resume its downtrend later this week or the week after.

For How Long The Down Trend May Continue

The easiest answer for such question is: only time will tell. However, from a technical point of view, the bearish outlook is here to stay.

Moreover, the Trump’s administration will face the critical situation over the coming weeks, especially when the former FBI chief testifies.

Also, the fiscal stimulus plan that Trump promised is not exactly what it looks like. He will actually finance the projects by cutting the cost of other sectors.

In short, no new money will be injected into the economy anytime soon. Therefore, the hopes of higher economic growth and better economic activities are probably far from being real.

Therefore, the downtrend is likely to continue over the coming weeks and months, even if the Federal Reserve decided to raise the rates later this year.

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