The US Dollar Index staged a promising recovery last week, however, the rally quickly fades after the US monthly jobs report failed to match the hype surrounding the headline number, following the strong ADP jobs numbers, and the encouraging drop in US weekly jobless claims.
With the greenback reversing against most major currencies the US dollar index is back in a precarious spot this week. The notion that FED are going to keep rates low, and QE is back in play again, following two consecutive Non-farm payrolls jobs report that failed to meet economists initial estimates.
This week the US CPI number is going to be a big deal for US dollar traders, as is the trading action in the bond market. Last week bond yields started to drop in the United States after the recent below par Non-farm jobs report. Should we see this theme continue we should expect more losses in the US dollar index.
The technicals clearly show that bears need to move the price below the 89.20 level to encourage a major technical meltdown this. The 89.20 level is very important from a technical perspective because it is the current yearly low.
If bears can breach the 89.20 level on a sustained basis then we should expect a strong decline towards the 2014 trading low, around the 88.25 level. Under this level and I afraid to say the US dollar is probably going to crash towards at least 86.00.
Sentiment is offering a huge red flag right now, as some 92 percent of traders are bullish towards the US dollar index right now. The heavy one-way sentiment bias is likely to lead to further losses in my opinion as too many traders are bullish, despite the index being in a confirmed bear market.
US Dollar Index short-term Technical Analysis
Looking at the four-hour time frame a large head and shoulders pattern continues to play out, and last week’s bullish move towards the 90.60 level could have helped form or complete a final right-hand shoulder.
The bearish price pattern will be activated this week if the US dollar index falls below the 89.60 support level. According to the overall size of the pattern the US dollar index could fall towards the 87.00 level.
See real-time quotes provided by our partner.
US Dollar Index Medium-term Technical Analysis
According to the daily time frame, a large, inverted head and shoulders pattern will be invalidated if the price crosses below the 88.30 support level.
The invalidation of the bullish price pattern could cause a decline towards the 75.00 support area. This is an extreme scenario; however, it is noteworthy that a technical meltdown will take place if the pattern is invalidated.
See real-time quotes provided by our partner.
