The US dollar index remained well-supported on Monday as US nominal and real yields continued to move higher. Strength was felt the most against commodities and their related currencies.
The AUD/USD, NZD/USD, and USD/CAD currencies are all vulnerable to swings in risk appetite as their domestic economies are seen to be tied to global growth prospects due to the being major exporters of commodities.
It should be noted though that the underlying problems with supply of most of these commodities remain ever present. Worryingly, the war in the Ukraine is ongoing and doesn’t look like abating any time soon, despite no major announcement being made on May 9th, as feared.
Commodities bore the brunt of the selling yesterday, but the US Dollar index, did not set a new high because the euro currency started to rebound. The euro makes up a huge basket of the US dollar index, as does the yen.
The next big move should come after the CPI and PPI report from the US this week. With central bank divergence, and a growth remaining study in the United States, it is therefore possible we will see more greenback strength against other major currencies after the FED meeting.
According to the ActivTrader Market Sentiment tool some 74% 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 risen by around 10 percent since last week, which could hint at more downside.
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 102.50 area and is now started to base out around the pivotal 103.55 level.
However, caution should be advised as large amounts of negative MACD price divergence has also formed on the four-hour time frame.
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.
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, caution is advised as the DXY is still very overbought technically according to the mentioned time frame.