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The US dollar index has broken above the 102.00 level this week as the US dollar benefits from risk-off trading sentiment and an increased expectation of slowing global growth.
Most FX pairs have got crushed against the US dollar over the last few days, with the likes of the euro, British pound, Australian dollar, New Zealand dollar, and Canadian dollar under pressure.
For all intents and purposes traders need to know that the EURUSD pair makes up over 50 percent of the US dollar indeed lower. And when this pair breaks lower, then everything gets driven lower.
This clearly speak about the fact that the EURUSD has broken all forms of meaningful support and could soon be heading towards parity. This could see the US dollar index making a new multi-decade higher.
With central bank divergence, and a growth remaining study it is therefore a recipe for more greenback strength against other major currencies ahead of next week’s big Fed decision.
According to the ActivTrader Market Sentiment tool some 88% of traders are bearish towards the US dollar index, which may hint those further gains are coming as bearish sentiment is growing.
This is bullish contrarian signal is pointing to more USD gains, and we should also consider that while bond yields are breaking out this is further supportive for USD gains. Furthermore the EURUSD pair is close to breaking down below the 1.0600 support level, which would only serve to accelerate further upside in the US dollar index.
US dollar index Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the US dollar index pair has reached the overall target of an invalidated a large head and shoulders pattern and could see stage a miner correction.
Small amount of negative price divergence has also formed. According to the overall size of the bearish divergence, it shows that the US dollar index could be preparing to stage a move towards the 101.50 support area.
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US dollar index Medium-Term Technical Analysis
The daily time frame is showing that a bullish golden cross is underway, which was a key bullish breakout signal from earlier this year. The signal is still pointing to more gains ahead.
A test towards a multi-year trendline resistance, around the 104.00 area seems to be on the cards. A break above the trendline would cause more strong gains, while a rejection could see a raft of profit taking in the US dollar index.
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