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US Dollar Index (DXY) Talking Points:

Traders sooner-or-later learn that shocks tend to develop in the direction of the trend. On Wednesday, the US Dollar Index posted a bullish reversal near the top of an already extended uptrend. Surprisingly, the move happened absent a move higher in UST 10yr yields, which has guided the USD higher in recent weeks.

EURUSD Kicks Lower (DXY Higher) On Italian Drama

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Much of the focus of late that has led to further US Dollar strength seems to be the selling of the EUR in light of Italian anxiety. The anxiety has also been seen between the spread of Italian bonds or BTP’s and the German Bunds. A wider spread has aligned with the stress in the markets as they sell Italian debt, and subsequently, we’ve seen EUR put premiums jump indicating a desire to pay up for protection of a more aggressive decline.

Put simply, the EUR hedge is underway, andtraders are looking for selling opportunities in the market may have found it in EUR/JPY, which recently posted a technical bearish head and shoulders pattern on the back of Italian policy uncertainty.

Will FOMC Minutes Mentions An Inflation Overshoot?

The broad background appears to favor further upside for the US Dollar with real money, orlong-term investor participation may soon be picking up on a deteriorating EUR. Lastly, FOMC Minutes will likely focus on inflation inputs being mentioned but are less likely to rock the boat given the broader risks at hand.

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

Technically Speaking

Earlier this week, I pointed to a stall below 93 as likely temporary given that the DXY continues to trade above the 9- and the 26-day midpoint at 92.77and 92.00 respectively. These points tend to act as strong support with the Ichimoku lagging line well above price from 26-periods ago showing strong momentum.

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

RSI(5) may be overbought, but that’s an uptrend for you. From a momentum perspective, traders likely want to be aware of whether or not RSI(5) begins to establish a higher-low. A higher low or higher floor with RSI(5) tends to indicate a technical ‘regime shift’ toward a new trend.

Initial resistance comes in at 94, the 38.2% retracement followed by 94.94, the October/ November high.

DXY Looking Primed to Test 94/94 On Recent Breakout

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

Recommended Reading: 4 Effective Trading Indicators Every Trader Should Know

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

More For Your Trading

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.

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