The US dollar index has started the week on the backfoot due to increasing fears about the banks solvency global and general risk-off sentiment ahead of the Fed meeting later this week.
The the CME Fedwatch Tool is showing roughly 64% odds of the Fed raising rates by 25 basis point this week. This means that on the other side there is roughly 36% is siding with a pause in the tightening cycle.
Basically, this highlights how torn markets are feeling about what the Fed may do and is a major shakeup to pricing at the start of the month – when we were all still debating between 25 basis points and 50 basis point.
The fear in markets right now is that any inclination by the Federal Reserve to raise rates will put further strain on banks and more so, on sentiment among regional banks especially.
I think either way the US dollar looks shaky right now, and it is likely to lose out to gold and Bitcoin. Also, there really is not any great alternative currency right now, even the Swiss franc is out of favour.
Sentiment analysis is also a worry as it shows majority of traders are very 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 62% of traders are bullish towards the US dollar index, which certainly hints that bulls could be in for some pain this week.
Overall, with retail traders still positive we are probably going to see the US dollar index heading lower. Although the pace of this weeks 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 could be forming a head and shoulders pattern this week of the price is capped under 104.50.
I would be inclined to look for a short-term move towards the 102.50 area and complete rewinding of the February move higher. If the buck did come in favor a move to 106.00 is likely.
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. I guess the big question is when this next major downlog under 100.00 happens.