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US Dollar Technical Forecast: USD Bears Drive Dollar to Two-Month-Low

US Dollar Technical Forecast: USD Bears Drive Dollar to Two-Month-Low

2020-05-31 08:00:00
James Stanley, Strategist
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US Dollar Talking Points:

  • The US Dollar broke down to a fresh two-month-low this week.
  • The Greenback is now trading at its weakest level since the pandemic pandemonium began getting priced into markets.
  • As the Federal Reserve has very vocally supported risk markets, the prospect of continued support combined with recovery themes may allow for a continuation of the USD’s bearish scenario.

US Dollar Drops to Fresh Two-Month-Lows

After a burst of volatility in March that saw the USD jump by as much as 8.8%, the past two months have largely been marked by range-bound conditions in the US Dollar. And this has taken place even as the Fed and US Treasury department have ramped up stimulus efforts, leading to the idea that buyers were still holding support under the presumption or perhaps fear that another wave of economic weakness may be around-the-next-corner.

This week, however, brought a bit of additional optimism to the mix as it appears as though both European fiscal and monetary forces appear to be focusing on rebuilding efforts and, possibly with a greater degree of integration than what we’ve become accustomed to.

In the US Dollar, the currency broke below that range this week as the currency pushed down to a fresh two-month-low.

US Dollar Four-Hour Price Chart

US Dollar Chart

USD on Tradingview

Taking a step back to longer-term charts, and the US Dollar is in a precarious spot. That swing-high from March plots around a similar area that had rebuked the currency’s advance in 2016-2017; and that, at this point, is a 17-year high. There’s no evidence yet that buyers will be able to muster the strength to eclipse this level, bringing on the potential for a steeper fall.

Taking that a step further and focusing-in on the past few months – it’s notable that DXY has not been able to elicit a single monthly close above the 99.40 area on the chart so far in 2020 trade, even despite a general tonality of strength.

US Dollar Monthly Price Chart

US Dollar Monthly Chart

USD on Tradingview

The technical forecast on the US Dollar for next week will be set to bearish, largely focusing on this recent breakdown, along with that longer-term resistance; meshed with the prospect of continued recovery across markets which could entail further USD-weakness as markets gear for continued stimulus and low rates out of the US.

US Dollar Technical Forecast: Bearish

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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