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Talking Points:

- After gaining for six straight days, the DXY Index lost ground yesterday and is looking at its second consecutive loss today.

- Failure by the DXY Index to get back above 91.01 suggests that more pain may be ahead.

- Retail trader sentiment suggests a weak trading environment for the US Dollar through the end of the week.

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Volatility is back. It's time to review the Traits of Successful Traders series to stay grounded with the tenets of risk management.

In recent days, a good deal of focus has been on the US Dollar's attempt to climb out of its downtrend. However, given growing fiscal concerns and evidence of a regime change in markets, we've cautioned that it's still too early to call a bottom in the greenback. More evidence has emerged that the US Dollar may still have weakness ahead.

Ignoring the fundamentals for the moment - which have clearly turned against the buck - the technical picture for the DXY Index, as well as several USD-pairs, remains rather bearish.

Price Chart 1: DXY, AUD/USD, EUR/USD, & GBP/USD Daily Timeframe (2018 YTD)

US Dollar Slide Looks to Continue amid Key Technical Developments

For the DXY Index, price is now back below its daily 8-, 13-, and 21-EMAs. Daily MACD and Slow Stochastics have started to pinch and turn lower. A reading of the candlesticks from yesterday likewise reveals signs USD-bearish momentum is picking up:

- Bearish outside piercing bar: DXY, USD/CHF, and USD/JPY

- Bearish outside engulfing bar: USD/CAD

- Bullish outside engulfing bar: AUD/USD, EUR/USD, GBP/USD, NZD/USD

These candles offer clear, defined levels of risk for traders. Ultimately, however, the key level traders need to watch out for in the DXY Index before a sincere bottom can be called is thus 91.01. The DXY Index put in its 2017 bottom at 91.01 on September 8, and since breaking through said level on January 12, price hasn't looked back. Yesterday's price action does little to suggest that the bottom is coming any time soon.

In an environment where volatility has picked up, it is absolutely imperative that traders adjust their risk management perspective. If you haven't yet, it's the right time to review the Traits of Successful Traders series in order to become reacquainted with the tenets of risk management.

Read more: US Dollar Bounces, but Hasn’t Bottomed Yet - Key Levels

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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