The US dollar index has started to accelerate a new yearly high, with bulls now looking for a break above the 110.00 barrier and launching the index into a new and much higher trading range.
One of the main reasons for the latest breakout in the buck is the fact that the latest US data point have not been that terrible. This means as per the latest statement at Jackson Hole from Chair Powell that aggressive rate action will continue from the US central bank.
Yesterday’s ISM Manufacturing PMI came at 52.8 in August of 2022, the same as in July, and close to 53 in June. Today’s reading beat market forecasts of 52, but still pointed to low levels of factory growth not seen since June 2020.
In reaction to the report the US dollar index went to advance to a new 20-year trading high. The US dollar index is holding onto all its weekly gains ahead of the NFP jobs report.
One of the things that has been most shocking is the speed of the move higher in the US dollar index this year. The index could continue to advance to 114.00 according to technical analysis.
Such moves are nearly unheard of in the US dollar index in such a short period of time. This really speaks to not only the demand for greenbacks but also the rise in volatility in the foreign exchange market.
The next shoe to drop to accelerate the move in the buck will probably be the EURUSD pair. Due to the size of the euro in the trade weighting of the DXY, if the EURUSD pair starts to crash then expect the DXY to dramatically accelerate higher.
According to the ActivTrader Market Sentiment tool some 63% of traders are bearish towards the US dollar index, which certainly hints that retail could be in for more pain this week.
With this type of sentiment bias the US dollar index truly has the potential to still go much higher over the coming days and weeks. I suspect if we break the 110.00 level then this could happen.
Overall, with retail traders still very bearish we are probably going to see the US dollar index heading much, much higher.
US dollar index Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the US dollar index has ignited a large, inverted head and shoulders price pattern which is located between the 107.50 and 109.00 levels.
According to the overall size of the typically bearish pattern it shows that the US dollar index could be preparing to stage a move of around 150 points. I think the 110.50 looks like a probable target.
US dollar index Medium-Term Technical Analysis
The daily time frame is showing that US dollar has ignited a huge bullish reversal pattern. Last week it appeared a retest and bounce took place.
Until It is a very important week for the US dollar index. Lower time frame is suggesting the 114.00 level is a bullish target, and now higher time frame analysis is calling for 114.00 as a major target also.