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Dollar Index price digesting a plethora of concerns, including the US debt ceiling deadline

While the US dollar digests a plethora of catalyst: such as the US debt ceiling, inflation and policy, global growth and a mini-banking crisis, we assess how this is affecting the charting outlook for the world’s premier currency.

Source: Bloomberg

US Dollar index – what the technical analysis indications suggest

Source: IG

The US dollar index continues to trade in a longer term down trend despite the shorter term move higher. The long-term downtrend is suggested by the 50-day simple moving average (50MA) (green line) trading firmly below the 200-day simple moving average (200MA) (blue line).

In the medium term we see the price having whipsawed back and forth through the 50MA, suggesting that the trend over this period is that of a sideways consolidation.

In the short term the price move high has moved the US dollar index into overbought territory as indicated by the stochastic oscillator.

In aggregate these indications suggest that the short term move higher falls within a medium-term consolidation, although the longer-term bias (with regards to trend) remains down.

Trend followers might prefer to wait the short term move higher out, looking for a possible move back out of overbought territory to combine with a bearish price reversal before initiating new short positions.

US dollar Index – price action analysis

Source: IG

The medium-term sideways trend for the US dollar index is considered between levels 100.50 (support) and 105.30 (resistance). There are however several levels which sit in between this broader range.

The recent break above the 102.00 resistance level targets a move towards 103.15. The longer downtrend in play suggests that traders following the bias may prefer to wait out the near-term strength before looking for possible short entry.

Short entry might be considered on a bearish price reversal before the 103.15. Should a bearish price reversal not manifest before this level we would look for a bearish price reversal at either the 104.35 level or 105.30 level for short entry. In any of these scenario’s a close above the relevant resistance level or reversal high might be used as a stop loss indication, while targeting a move to the lower levels marked on the chart above.

IG client sentiment

Source: IG

The majority (64%) of IG clients with open positions on the US dollar Index expect the price to rise in the near term, while 36% of clients with open positions expect the price to fall. The client sentiment indicator represents a snapshot of open positions as of 11am (GMT) on the 17th of May 2023.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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