Dollar pauses for breath after five consecutive up days

The dollar buying has paused, at least for the time being. After rising for five consecutive days, some bullish traders are undoubtedly booking profit ahead of this week’s key fundamental events.

The dollar buying has paused, at least for the time being. After rising for five consecutive days, some bullish traders are undoubtedly booking profit ahead of this week’s key fundamental events. Others who missed the rally are not going to steam in on the long side without a pullback of some sort. But we think that the dollar may have made a bullish breakthrough in recent days and thus expect it to resume its short-term uptrend soon. The rising bond yields in the US should keep the dollar supported as the market looks forward to two or three more rate increases from the Federal Reserve this year. In contrast, central banks elsewhere have been backtracking on their recent hawkish remarks, not least the Bank of Canada and Bank of England. This week, both the European Central Bank and the Bank of Japan are likely to also lean more towards the dovish than hawkish side. After all, most of the first quarter economic data in Germany – the Eurozone’s economic powerhouse – have been disappointing. What’s more, ongoing concerns over trade may discourage even the hawkish policymakers from trying to tighten monetary policy. If the ECB does come across as being more dovish than hawkish then this could undermine the euro further and underpin the dollar. There is also the possibility we will see a positive surprise when the first estimate of US Q1 GDP is published on Friday given that expectations are so low. But if the ECB is surprisingly hawkish and or US data disappoints then the Dollar Index may come under real pressure again due to a potential rally in the EUR/USD exchange rate.

More bullish signs for dollar

Last week we reported that the Dollar Index (DXY) was showing tentative bullish signs. Well, those signals proved to be valid as the DXY has now formed further bullish price action. As can be seen on the updated chart of the dollar, it has now broken above the long-term bearish trend line. This trend had been in place since the end of 2016. In doing so, it has also cleared resistance in the 90.45-90.60 range. This area is now going to be the first and key support area to watch. For as long as the dollar remains above this range, the path of least resistance would be to the upside. If support does not come in here then there is a risk that the DXY could drop to the next support at 89.95 before making its mind up about the next directional move. But after a five-day winning streak, the dollar does look a little bit overbought in the short-term outlook. What’s more, it is now testing resistance at 91.00, which was also the 2017 low. So, there is a possibility for a short-term pullback now. However, we think that the dips will be shallow and expect this 91.00 resistance level to give way eventually. If and when that happens, then the bulls will look to aim for the 91.75-91.92 resistance range as their next objective.

Source: eSignal and Please note, this product is not available to US clients.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account