The US dollar index has started to accelerate to the downside, despite initially strengthening after last week’s above consensus non-farm payroll jobs report from the US economy.
Traders continue to sell the US dollar as the FED is expected to hike rates by 50 basis points in the coming weeks. If this happens as expected the downside in the DXY could accelerate further.
Far more interesting is the trend change in the daily time frame. The mentioned time frame is also showing a clear break under the US dollar index’s 200-day moving average.
This is a very negative technical sign. The medium-term trend is now bearish as of last Thursday when the US dollar has broken under its 200-day moving average for the first time in nearly 18 months.
I think more downside is likely ahead. I also believe eventually the US dollar index could reach the 102.00 level and below the 100.00 level. For the record, the 200-period moving average of the DXY is around 97.00 hand.
According to the ActivTrader Market Sentiment tool some 69% of traders are bullish towards the US dollar index, which certainly hints that bulls could be in for more pain this week.
Overall, with retail traders still positive we are probably going to see the US dollar index heading lower. Although the pace of this week’s decline is pretty significant already.
US dollar index Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that a bearish head and shoulders pattern is starting to play out. The price has now broken under neckline support, but it is yet to meet its downwards price target.
I would be inclined to look for a short-term move towards the 102.00 area. The mentioned time frame is also showing a clear break under the US dollar index’s 200-period moving average.
US dollar index Medium-Term Technical Analysis
The daily time frame is showing that US dollar is moving towards a key test of the multi-year range break around the 103.00 level. This could happen very quickly. A move back into the formed range would be really bearish.
For now, in order for the downtrend in the US dollar index to really stick technically, we probably need to see the 105.50 area defended. This is former breakout support zone now turned resistance.