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US Dollar Index (DXY) Forecast: USD Strengthens As FX Foes Flop

US Dollar Index (DXY) Forecast: USD Strengthens As FX Foes Flop

2018-05-07 15:30:00
Tyler Yell, CMT, Currency Strategist
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US Dollar Index (DXY) Talking Points:

  • The ONE Thing: Who will stop the US dollar? Since mid-April, when DXY began its aggressive bullish move out of hibernation, fundamental data from key counterparts to the US Dollar have continued to weaken whether it be major economies or emerging markets, which could keep the trend higher going yet!
  • US Dollar Index Technical Analysis: The US Dollar rose to the highest level since late-December, and the worsening outlook for EUR/USD that could test 1.17/15 after Monday’s poor German manufacturing data and another disappointing CPI and recent ECB dovish speeches are anticipated to leave EUR weaker and DXY stronger.
  • Trader Sentiment Highlight from IG UK: The steady rise in net-long positions favors further EUR/USD (57.6% of DXY) downside. The sentiment pictureis utilized as a contrarian technical trading tool, which derives insight from our Traits of Successful Traders research

The US Dollar Index rose to the highest level since late December on Monday’s trading and looking across the board it is easy to see why. The EUR slipped to a new 2018 low thanks to weak German manufacturing data that saw EUR/USD breach below 1.19 to 1.1898. Another kick for EUR bulls and a sigh of relief to the reluctant to tighten ECB was that February’s reading was revised lower.

Sterling and Yen, the other two major factors of the US Dollar Index have a big week. The Bank of England is set to announce their rate decision on Thursday with the most bullish forecast on average anticipating a hawkish hold where a central bank informs markets that a hike is imminent. However, the trend in GBPUSD appears set after a recent break below the 200-DMA.

Lastly, for the Japanese Yen fell toward 109.40 JPY per USD as minutes from the Bank of Japan’s March 8-9 policy meeting showed a few board members still see the economy has a long road to travel before reaching their inflation target, something Kuroda recently removed.

Also, while not a major factor of the US Dollar Index, it should not be forgotten the horrible week had last week by Emerging Markets. Thanks in large part to an ugly trio of geopolitics, protectionist agendas, a rising core borrowing cost for the global reserve currency assets across EM fell with the most notable move in Argentina. This mix may also continue to support the US Dollar that saw its third consecutive gain last week.

Technical Focus on US Dollar Index: Hard To Call This Temporary

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Unlock our Q2 forecast to learn what will drive trends for the US Dollar through 2018!

The US Dollar Index pushed to the highest levels since late December on Monday morning despite a soft, but still supportive Non-Farm Payroll release. With EUR/USD showing scope for a move down to 1.17/15, it’s hard to say the trend higher in the US Dollar Index will be over anytime soon.

Traders that rely on the often-useful Ichimoku cloud can look to the 9-day midpoint at 91.83 and the 26-day midpoint at 90.70 as key focal points of trend support. Absent a close above these levels and further weakness in the EUR, JPY, GBP, & EM makes the upside a compelling place to trade toward yet.

Not familiar with Ichimoku? You’re not alone and in luck. I created a free guide for you here

Here’s to another week of trading!

Recommended Reading: 4 Effective Trading Indicators Every Trader Should Know

Insight from IG Client Positioning: Traders are betting the EUR has bottomed, but that may be an expensive play.

US Dollar Index (DXY) Forecast: USD Strengthens As FX Foes Flop

EUR/USD sentiment is analyzed for insight since EUR/USD makes up 57.6% of the DXY basket.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall.

New to FX trading? No worries, we created this guide just for you.

TO READ MORE:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

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