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US Dollar Index (DXY) Forecast: Consumer Data Week Opens Weak for USD

US Dollar Index (DXY) Forecast: Consumer Data Week Opens Weak for USD

Tyler Yell, CMT, Currency Strategist

US Dollar Index (DXY) Talking Points:

  • The ONE Thing: Is the stage set for a US Dollar bounce? Last week ended with EUR/USD, GBP/USD, and USD/JPY showing the USD was not the boss it was once three weeks ago in G10FX. This will provide markets with an in-depth look at the driver of the US Economy. No, not the Federal Reserve, the US Consumer, and a positive surprise could help lift the US Dollar and inflation expectations.
  • Markets to watch this week will be EUR/USD, which bounced aggressively off the 55-WMA. A strong break above 1.2020/40 could show the US Dollar weakness has legs. To find confirmation, traders should look to USD/JPY near 109.50-110.30. If the price holds below this resistance point, it may be another sign that US Dollar bulls have sold in May and are set to go away.
  • US Dollar is continuing to lick its wounds from the lower than expected CPI and normalization of the off-sided short position in the US Dollar per the CFTC Commitment of Traders Index that helped spark the initial gains in the DXY. A break above 91.71 is a likely focal point for traders as the index drops to start the week.

So much of the US Economy and the markers that help markets understand what the Federal Reserve is thinking is driven by the US Consumer who can never seem to get enough. Despite a ‘weak’ reading relative to expectations, Consumer CPI has jumped from 1.8% at the beginning of the year to 2.1% YoY with the Federal Reserve saying they’ll allow for a symmetrical move around the target in core inflation. In other words, they see a hot economy heating up, and they’re OK with that. This week, we’ll see if the economy is heating up or not based on data such as Retail Sales, which is seen as the highlight of the week that is otherwise quiet.

Positioning & Technicals: Stage Set For Directional Pivot in US Dollar

The panic at the US Dollar short trade appears to have died down as USD’s near-term momentum higher has undoubtedly stalled. Institutions are looking at recouping some of their losses on long EUR/USD & GBP/USD if the USD weakness resumes, which can be tracked via recent pivots such as the 55-WMA on EUR/USD and the trendline drawn from the 2016 closing low on GBPUSD that was recently broken.

Dollar Index Chart Watch: 92.42 Now Acting As Resistance

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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 fresh 2018 highs last week but is now facing the opening range low of May that could be seen as a door for further losses. The May low is 91.38, which aligns with the broader support that combines a confluence of resistance that US Dollar aggressively broke through in late April.

Additionally, the previously mentioned 9-period midpoint at 92.42 may now act as resistance for short-term traders as the recent break below gives a reason for short-term pause. The broader picture from the ever-helpful Ichimoku shows a bullish trend in pullback mode that would be reaffirmed on a move back above the 9-day midpoint as long as the lagging line remains above price from 26-periods ago.

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

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.

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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.

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

More For You:

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 feed has 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.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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