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The US dollar index suffered its worst week since mid-January last week despite growing expectations that the Fed are going to hike interest rates by 50 basis points at the next meeting.
The buck failed to really react to the ISM Services PMI arriving at 55.1 last Friday. The inflation component of the PMI survey, the Price Paid sub-index, edged lower to 65.6 in February from 67.8 but surpassed analysts’ estimate of 64.5.
This Fed look closely at the inflation reading in the ISM Services, so this could also set about more downside for the US dollar index at the start of the week until Payrolls is release.
Technically, it is more of the same for the US dollar index, as it continues to trade below its 200-day moving average and is currently sandwiched between the 105.00 to 106.00 price range.
I think the US dollar index could reverse higher at some point as the market is way too bullish on the buck. This is also confirmed by sentiment analysis, as it shows a huge majority of traders are very long the US dollar index.
According to the ActivTrader Market Sentiment tool some 89% 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 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 has formed a bearish double-top price pattern, with bulls really needing to make traction this week.
In fact, if you look closely at the four-hour price chart I can see potentially a dual double-top in play of bulls fail to make it past the current yearly high, just under the 106.00 level.
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US dollar index Medium-Term Technical Analysis
The daily time frame is showing that US dollar is still trading well below its 200-day moving average, with the price still very far away traders may continue to sell rallies.
For now, in order for the downtrend in the US dollar index to really stick technically, we probably need to see the 106.00 area defended.
A bearish head and shoulders pattern is also still seen with the pattern potential carving out a final right hand should upto the 106.00 to 108.00 area.
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