The US dollar index remained well-supported above its key 20-day moving average half through the week due to the stronger than expected ISM Manufacturing PMI data from the US economy.
The has helped push the buck against major currencies, lifting the index back above the 102.50 level. Additionally, US Treasury yields led by the 10-year benchmark note rose and finished around 2.911%
The US dollar is also being support by hawkish Fed speaker this week. The San Francisco Fed President Mary Daly said that she sees a couple of 50 bps increases and added that they need expeditiously to get to neutral.
Richmond’s Fed President, Thomas Barkin, also said that a recession couldn’t be found in the data or actions of business executives, which goes against the stagflation narrative.
Although he added that a reduction in the balance sheet does a little more on top of rate hikes to tighten policy. Barkin commented that comfortable with the path of rate hikes for the next couple of meetings while supporting more rate hikes.
Going forward, the Non-farm payrolls job report is likely to be the next major catalyst for the US dollar. Expectations are for 325,000 new jobs to be created, which is lower than the April headline number.
According to the ActivTrader Market Sentiment tool some 75% 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 constrain signal is pointing to more USD gains, it should be noted that bullish sentiment has largely remained the same since last week, which could hint at more upside.
US dollar index Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the US dollar index pair has corrected to the 101.24 area and is now starting to form a bullish inverted head and shoulders pattern.
According to the overall size of the bullish reversal pattern, it shows that the US dollar index could be preparing to stage a move towards the 103.50 resistance area.
US dollar index Medium-Term Technical Analysis
The daily time frame is showing that US dollar index has briefly breached a key multi-year trendline, although it has still failed to rally past the 2017 high with conviction and make more strong price gains ahead.
A break above the trendline would turbocharge a surge in the US dollar index, however, we need to see the US dollar index continuing to hold above the 20-day moving average on the daily time frame.