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Talking Points:
- US Dollar Index Technical Strategy: Anticipating further counter-trend rally above 92.55/82
- US Dollar Index rejected strongly recently at 94.19; focus will remain there for LT bias
- Sentiment Highlight: EUR/USD bearish bias from retail gives warning for further DXY weakness
On October 6, DXY capped off a 3.5% rally after being sold for much of 2017, but the price of the US Dollar has struggled to find life since. Over the weekend, current Fed chairwoman, Janet Yellen shared that her “best guess” is that inflation will rebound after unexpected underperformance of US inflation data.
Recently, the US Dollar has traded lower after being rejected at a confluence of resistance near 94.20. The zone around there combined three different technical focuses. First, the mid-August corrective/lower high was at 94.15 followed by a 161.8% extension at 94.20 of the initial move higher when the DXY was seen as too oversold in early September given possible rate hikes at 91.01 to the September 14 high of 92.65. Lastly, a price channel that has framed price action for most of 2017 also predicted price pressure developing above 94.
From here, only a daily close above the 94.20 figure (importance outlined above) opens the door for a challenge of the 2017 downtrend. The first key upside focus would be 95.25 (61.8% retracement of the June-September range.) Alternatively, a reversal back below the 92.82/55 exposes a likely continuation of the downtrend that would first target 91.53 (Sept. 20 low, first corrective higher low.)
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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
Insight from IG Client Positioning: Pickup in long positioning favors resistance on price advance
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
EUR/USD sentiment is analyzed for insight since EUR/USD makes up 57.6% of DXY.
EURUSD: Retail trader data shows 38.3% of traders are net-long with the ratio of traders short to long at 1.61 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.08123; theprice has moved 9.2% higher since then. The number of traders net-long is 4.5% higher than yesterday and 10.5% lower from last week, while the number of traders net-short is 9.9% higher than yesterday and 10.5% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bullish contrarian trading bias (emphasis added.)
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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