Weekly US Dollar Technical Forecast: Not Out of Trouble Yet; Still Beneath Multi-Year Uptrend

Technical Forecast for the US Greenback: Impartial

  • The DXY Index’s breakdown bythe rising trendline from the April 2011 and February 2018 lows has endured regardless of losses clawed again in latest days.
  • Information that Republican Senate Majority Chief Mitch McConnell would break with US President Donald Trump over a fiscal stimulus package deal helped set off a bounce in US actual yields, serving to raise the US Greenback.
  • The IG Shopper Sentiment Index suggests that EUR/USD and GBP/USD charges may rally.

US Greenback Fights Again, however Nonetheless in Hassle

The US Greenback (by way of the DXY Index) ended the primary full week of October on a weak be aware, closing at its lowest stage in almost a month because of a pointy drop on Friday. Synchronous shifts in each technical and elementary moorings now recommend that the US Greenback could also be beginning its subsequent leg decrease: the pullback in US actual yields round US political headlines; and the break of the DXY Index’s uptrend from the September swing lows, all of the whereas failing to climb again above a near-decade lengthy rising trendline. The remainder of October is shaping as much as be an unpleasant month for the US Greenback, from this strategist’s perspective.

DXY PRICE INDEX TECHNICAL ANALYSIS: WEEKLY CHART (NOVEMBER 2016 to OCTOBER 2020) (CHART 1)

Weekly US Dollar Technical Forecast: Not Out of Trouble Yet; Still Beneath Multi-Year Uptrend

Even with the positive aspects seen prior to now week, the DXY Index has but to climb again above the rising trendline from the April 2011 and February 2018 lows.Equally, the downtrend from the March and Might swing highs stays intact (seen on the subsequent chart). To this finish, whereas the basic headwinds are shifting, the technical proof has not but mounted for a major bullish reversal.

That stated, technical momentum is starting to shift on the weekly timeframe, with the DXY Index buying and selling above the weekly 4- and 13-EMAs, whereas nonetheless under the weekly 26-EMA. Weekly MACD is trending greateralbeit in bearish territory, whereas Gradual Stochastics are turning greater once more in the direction of their median line. in the direction of oversold territory.

In earlier weeks, the DXY Index failure occurred on the 38.2% Fibonacci retracement of the 2017 excessive/2018 low vary close to 94.20. The 94.00/20 space has been a dynamic band of help/resistance since late-July (additional reinforcing the severity of the latest breakdown). Ought to the DXY Index clear this stage, nonetheless, there can be higher proof of a topside transfer creating.

DXY PRICE INDEX TECHNICAL ANALYSIS: DAILY CHART (OCTOBER 2019 to OCTOBER 2020) (CHART 2)

Weekly US Dollar Technical Forecast: Not Out of Trouble Yet; Still Beneath Multi-Year Uptrend

The short-term downtrend from the late-September and early-October swing highs has been damaged, however the downtrend from the March and Might swing highs stays in place – successfully the pandemic downtrend. Because the DXY Index stays under the rising trendline from the 2011 and 2018 lows, in addition to the 38.2% Fibonacci retracement of the 2017 excessive/2018 low vary close to 94.20, it’s too quickly to say that the bearish momentum that developed in the course of the pandemic has actually subsided.

But, the DXY Index is now above its day by day 5-, 8-, 13-, and 21-EMA envelope, which is shortly aligning in bullish sequential order. Day by day MACD is beginning to rise in bullish territory, whereas Gradual Stochastics is shortly rallying in the direction of its impartial line. As famous beforehand, “positive aspects by 94.00/20 would signify a possible bullish reversal. In any other case, the US Greenback will stay on exceptionally weak footing.”

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CFTC COT US Greenback Futures Positioning (October 2019 to October 2020) (Chart 3)

Weekly US Dollar Technical Forecast: Not Out of Trouble Yet; Still Beneath Multi-Year Uptrend

Trying at positioning, in accordance with the CFTC’s COT for the week ended October 13, speculators eradicated their net-short US Greenback positions and flipped to a minor net-long place of 0.4K contracts (437 in complete), from the 3K net-brief contracts held within the week prior. That is the primary time for the reason that week ended June 9 that speculators within the futures market have been net-long the US Greenback.

IG Shopper Sentiment Index: EUR/USD Fee Forecast (October 16, 2020) (Chart 4)

Weekly US Dollar Technical Forecast: Not Out of Trouble Yet; Still Beneath Multi-Year Uptrend

EUR/USD: Retail dealer information reveals 38.27% of merchants are net-long with the ratio of merchants brief to lengthy at 1.61 to 1. The variety of merchants net-long is 10.72% decrease than yesterday and 22.89% greater from final week, whereas the variety of merchants net-short is 5.90% greater than yesterday and 11.80% decrease from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-short suggests EUR/USD costs could proceed to rise.

Positioning is extra net-short than yesterday however much less net-short from final week. The mixture of present sentiment and up to date adjustments offers us an additional blended EUR/USD buying and selling bias.

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— Written by Christopher Vecchio, CFA, Senior Foreign money Strategist