The U.S. dollar gained strength versus all major currencies this past week. As far as the distribution of the greenback’s demand, it was smooth among its peers. I decided to have a closer look at the U.S. dollar index to identify medium- and short-term technical sentiment as many traders are trying to gain a grasp on this.
A squeezed daily chart below shows the greenback’s uptrend since May 2018. Before adding any technical indicators, I wanted to draw a couple of trendlines and get a graphical analysis. Until June 2019, the blue dashed line acted as a support trendline as bearish retracements were limited exactly by that line. In the last four months, that line acts as a magnetic median line, attracting average daily prices. The green median line formed in the same period, but it has a much sharper slope, so its sustainability is under question. Nevertheless, the current rate is below both lines, which should point to a slower pace of growth.
After testing the year-to-date peak on October 1 (99.67), DXY dropped more than 2.5%, counting from the peak to recent low. Such a sharp decline in just one month cannot be considered a simple retracement. So some analysts had decided that the greenback already reversed the long-term uptrend. However, given the speed of the recent upside swing, it would be too early to conclude the king’s death. On the other hand, DXY had just come back to average rates, considering the long-term median value. Further trend’s direction is not so clear as it might seem.
Another version of the daily chart setup below shows that long-term exponential moving averages did not cross each other yet, although the index appeared below the EMA144 quite deeply. The same story happened during bearish retracements in January and June 2019, and every time the greenback was coming back to the uptrend after them. Other indicators are in favour of the bulls as well. MACD lines performed the bullish crossover and the histogram turned positive. 13-day RSI crossed the 50 threshold from below, changing the sentiment to bullish. There might be a comeback to support curves previously breached (EMA34 and EMA89), however, such a bounce would only confirm the bullish formation on MACD and RSI, gaining another chance to long the greenback for those traders who missed the recent rally.
Parabolic SAR, Average Directional Index and the BullBearTrend indicator provided a buy-signal simultaneously last week. The only concern might be that the ADX main line is headed south towards the threshold, but that might be related to its lagging nature. Still, the momentum is strong and the surplus is bullish. Therefore, I do not see any reason for the greenback to decline in the week ahead from a technical point of view.
Best wishes in the market this week traders!!
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