The US dollar index had a breakout week on the foreign exchange market last week after months of hovering around the top end of its yearly trading range, and the 2020 high.
Bulls now have their sights on new highs after the range was broken, and we should also consider that a big part of the breakout in the US dollar index is weakness in the euro currency, which makes up a significant amount of the US dollar index basket.
The economic docket this week for the United States is focused on retail sales and host of FED speakers. FED members discussing the 30-year high CPI reading from October could move the buck.
With the technicals and the fundamentals both aligning makes a compelling case for further upside in the US dollar index this week. If the breakout above the 94.74 level holds firm then we could well see a test towards the 96.50 level next.
Ideally, US dollar buying will likely dramatically accelerate if we see the 94.74 hold, and it could be relatively easy swing trade. The same is also true if this 94.74 support level is broken to the downside.
Overall, the bigger picture shows that the US dollar index could be warming up for the 98.00 level by the end of the year. I would suggest keeping a close eye on the EURUSD pair being capped under the 1.1540 level also, more downside is extremely likely.
The ActivTrader market sentiment tool is showing that some 82 percent of traders are bearish towards the US dollar index. This is good for bulls and speaks to the fact that bullish sentiment is dropping, which is what probably needs to happen for the rally to continue.
US Dollar Index short-term Technical Analysis
Looking at the four-hour time frame, the technicals look great, with the US dollar index officially igniting a large, inverted head and shoulders pattern, which is a bullish reversal pattern.
According to technical analysis a sustained move above the 94.70 level is now happening, and the pattern upside target of 96.00, at a very minimum.
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US Dollar Index Medium-term Technical Analysis
The medium-term picture for the US dollar index looks to be very bullish above the 94.70 level looking at the daily time frame. This is essentially the top end of the multi-year price range for the greenback.
A major range break above the 2020 highs is in progress, and thus we should expect a surge equal size to the range break and send the buck towards the 98.00 level at a minimum.
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