Technical Bias: Bullish
• US dollar index is testing a critical resistance zone and eyeing a break higher.
• Big drop in the British pound helping the US dollar to overcome odds.
• US dollar index support seen at 81.45 and resistance ahead at 81.65.
The US dollar index is flirting around an important resistance area, and if it manages to break higher then sharp gains are likely in the short term.
There is a critical contracting triangle forming on the 4 hour timeframe for the US dollar index. As this analysis is being written the US dollar index is testing the triangle resistance trend line around the 81.62-65 levels. If it manages to break the triangle resistance and settle above it, then there is a chance that it might jump towards the 81.80 level, followed by a test of the 82.00 level. The US core retail sales data was published yesterday during the New York session, which missed the forecast of a 0.2% rise.
This weighed on the US dollar initially, but the market sentiment was still in the favor of the US dollar as it recovered most of the lost ground within hours. The US dollar index is currently above all three important simple moving averages (200, 00 and 50), which adds to the view that it might break higher moving ahead.
Alternatively, if it moves lower from the current levels, then initial support can be seen around the 50 SMA (4H), which is currently at 81.45. Any further losses might take the US dollar index towards the triangle support trend line.
Euro Zone CPI and US Initial Jobless Claims
There are a couple of important news releases lined up later today, including the Euro zone CPI data and the US initial jobless claims. Both events have the potential to impact the US dollar to a greater extent. So, we need to watch these events carefully moving ahead.
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