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The US dollar index has started the week in a volatile fashion ahead of the release of the expected US CPI inflation which could cause concern from the FED if it comes into high today.
The Federal Reserve officials appear on track to stop their run of interest-rate hikes when they meet next month, however, a high number today could stop that possibility in its tracks.
Fed officials raised their benchmark lending rate a quarter point to 5%, as they sought to balance price pressures that remained too high. Alternatively, a week CPI report could cause a major sell-off in the greenback.
However, the US dollar is up this week as traders are not convinced and economic data from the US economy remains weak, and also fears about the United States debt ceiling debacle.
Going forward, the fear is that the US dollar index could slip well below the 100.00 level and begin to collapse if CPI underwhelms. Alternatively, a run to 103.00 could happen on the back of a strong number.
Sentiment analysis is also a worry as it shows a small majority of traders are long the US dollar index, which likely means the need to be cautious right now. This could spell more losses for the buck.
According to the ActivTrader Market Sentiment tool some 52% of traders are bullish towards the US dollar index, which does not provide many hints that bulls or bears could be in for some pain this week.
Overall, with retail traders still slightly positive we are probably going to see the US dollar index heading lower. Although the pace of this week’s decline is pretty significant already.
US dollar index Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the US dollar index is forming bearish lower highs and lower lows, all classic signs that the buck could breakdown.
I would be inclined to look for a short-term move towards the 100.00 area and complete rewinding of the April move higher towards the 102.50 zone.
Watch out for a break above the 200-period MA or a move under trendline support to confirm the breakout.
US dollar index Medium-Term Technical Analysis
The daily time frame is showing that a bearish head and shoulders pattern is also still seen with the pattern potential carving out a final right hand around currency levels or right area.
Either way, the US dollar looks primed for a major fall in the medium-term. If the next major down leg under 101.00 happens we could see a major acceleration towards 98.00 and 96.00.
