US Dollar Index outlook: Dollar gains traction but faces strong obstacles

Slobodan Drvenica Windsor Brokers

US Dollar Index

The dollar index is holding firm tone in early Tuesday, following 0.8% advance on Monday (the biggest one-day rally since Oct 27.

Better than expected US data on Monday (services PMI, Factory orders) improved the sentiment and lifted the greenback, as signals that the economy remains robust despite strong rise in borrowing cost, counter recession worries.

The US central bank is expected to raise interest rates by 50 basis points to 4.25%/4.5% range in the policy meeting next week, with terminal rate seen just above 5% and expected to be reached in May.

On the other hand, the risk sentiment is expected to be hurt by the impact of the latest decision of the EU to cap prices of Russian oil, which would start to hit energy prices in the Europe soon.

Daily studies slightly improved on Monday’s completion of bullish engulfing pattern and stochastic emerging from oversold zone, along with north-heading 14-d momentum, though still holding in negative territory. Fresh bulls face strong barrier provided by 200DMA (105.53) which capped the cation on last Fri / Mon, after being broken last Thursday and reverted to resistance.

In addition, converging falling 10 DMA and 200DMA are on track to form a death-cross, which would further strengthen resistance.

Bullish scenario requires firm break of 200DMA to generate fresh bullish signal, which would look for confirmation on rise above 107.13 (Nov 30 lower top), otherwise limited recovery would keep larger bears intact and risk fresh push lower.

Res: 104.95; 105.44; 106.08; 106.86.
Sup: 104.95; 104.31; 104.05; 103.18.

Author

Slobodan Drvenica

Windsor Brokers

Industry veteran with over 22 years’ experience, Slobodan Drvenica joined Windsor Brokers in 1995 when he was an active trader for more than 10 years, managing the trading desk and own account departments.

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