Ross Woodfield
Blackwell Global Investments Limited
The Dollar Index has had a solid run in the past month or so, but taking a wider view shows the resistance it is up against. The price looks to have rejected solidly off the top of the channel and could begin to reverse down to the bottom of the channel.
The US dollar index has surged ahead over the course of July, as optimism about the job market from the US Federal Reserve fuelled the Dollar bulls. The month began with positive nonfarm payroll data that showed 288k jobs added to the US economy in June and the unemployment rate fell to 6.1%. Recently the Advance GDP figure added more upward pressure on the US dollar with a strong Q2 reading of 4.0% (annualised) growth. This is a good turnaround from the -2.9% in Q1.
The end of last week was the rain on the parade of the US dollar Bulls, suggesting the dollar may have overextended. The latest Nonfarm payroll data showed the US economy added 209k jobs in July. A good result, but below the 230k the market had expected and well below last month’s 288k. Furthermore the unemployment rate rose unexpectedly from 6.1% to 6.2%. This contributed to the rejection off the top of the channel and the formation of a rough triple top as seen on the below H1 chart.
The price is currently sitting under the neck line having broken through it and pulling back. The next effort will be to test the bullish trend line from the past month, and if this breaks down, we could see a strong movement towards the bottom of the channel. The RSI also points to a bearish movement, with several lower highs.
A reversal will look for previous levels of support/resistance as targets for the downward movement. Support for a bearish movement can be found at 81.07, 80.55 and 79.74. These could all act as exit points for traders looking to catch the downward momentum of a bearish reversal.
The US dollar index looks to have met some tough resistance at the top of a channel and could be overextended. A triple top and a descending RSI point to a possible bearish reversal which could take the US dollar much lower.
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