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The US dollar index hit a new 2021 trading high last week, following the Federal Reserve’s November policy decision, which was ultimately seen as bullish for the US currency.
Things become slightly more complicated this week for the greenback, as the massive US infrastructure bill has just been approved and the US dollar index showed some weakness after the October jobs report.
It largely remains to be seen if traders will sell the US dollar index this week, based on the notion that the US government has just increased its spending by massive amounts, placing further strains on the nations fiscal situation.
The technical are telling a different story. The ability for the US dollar index to hold above the 94.00 level has been very impressive, and dips under the 94.00 level has been aggressively bought.
Bulls may be edging towards a test of the 95.00 resistance level this week, so it is highly probably we could see the US dollar index trade between the 94.00 to 95.00 price range.
Ideally, bulls to take-out the multi-year range high, around the 94.74 level. US dollar buying it likely to dramatically accelerate if we see the 94.74 breached. The same is also true for the 93.70 support level to the downside.
The ActivTrader market sentiment tool is showing that some 60 percent of traders are bullish towards the US dollar index. This is good for bulls and speaks to the fact that bullish sentiment is dropping, which is what probably needs to happen for the rally to last.
US Dollar Index short-term Technical Analysis
Looking at the four-hour time frame, the technicals look increasingly good, with the US dollar index officially forming a large, inverted head and shoulders pattern, which is a bullish reversal pattern.
According to technical analysis a move above the 94.70 level needs to be activated the mentioned inverted head and shoulders pattern, which holds an upside target of 96.00 is forming.
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US Dollar Index Medium-term Technical Analysis
The medium-term picture for the US dollar index looks to be very bullish above the 94.70 level, as this basically denotes the top end of the multi-year price range for the greenback.
A major range break above the 2020 highs, located around the 94.70 level, could cause a surge equal size to the range break and send the buck towards the 96.00 level at a minimum.
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