The US dollar index remains under downside pressure as a bearish death cross remains in play and retail traders are caught long while the buck continues to descend lower and lower.
A sudden move to risk-off trading sentiment is needed to move the US dollar higher. Even worsening events in the Ukraine are not helping to reverse the dire situation for the greenback.
The previously mentioned death-cross is a significant event from a technical perspective as it now means that the US dollar index has the potential to quickly spiral lower from current levels.
I think more downside is likely ahead until we see a relief rally. I also believe eventually the US dollar index could reach the 100.00 level based upon the short-term technical picture.
This is also confirmed by sentiment analysis, as it shows a huge majority of traders are very long the US dollar index, which likely means more short-term pain ahead.
On the fundamental front I think the Ukraine and the Fed meeting in February remain the big catalysts to watch. I suspect, and based on the charts we could see a lower and then higher scenario.
According to the ActivTrader Market Sentiment tool some 91% of traders are bullish towards the US dollar index, which certainly hints that bulls could be in for more 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 price is trapped inside a large broadening expanding descending wedge pattern. The price is likely to test the wedge bottom which is the immediate downwards price target.
I would be inclined to look for a short-term move towards the 100.00 area. Then a recovery back towards the 105.00 area. Above the 105.00 level the sky is the limit for the buck.
US dollar index Medium-Term Technical Analysis
The daily time frame is showing that US dollar has broken under its 200-day moving average, so far a death-cross is underway, but not yet is it in full swing.
For now, in order for the downtrend in the US dollar index to really stick technically, we probably need to see the 100.00 area defended.
A bearish head and shoulders pattern is also seen with huge downside potential towards the 96.00 level.