The US Dollar Index has failed to catch a break this week, despite very strong retail sales and consumer price index inflation data, which would invariably be bullish for the greenback during better days.
A high degree of negativity appears to have set in towards the US dollar, and this is most evident with the index’s failure to recover above its trend defining 200-day moving average over recent trading sessions. The US dollar index have various opportunities and reasons to recovery but failed to do so.
It is possible that the recent multi-week move higher towards the 93.50 mark may have just been a correction within a very pronounced bear market. Fibonacci analysis is currently suggesting that this indeed could be the case.
The recent move higher in the US dollar index stopped at the 50 percent Fibonacci retracement level of the current 2021 low to the technically important July 2020 swing-high, around the 93.45 resistance level.
Typically, in bull or bear markets, a 50 percent correction will take place in order to let traders enter into the prevailing trend. This usually happens as traders book profits, and for the lack of better word, as trend exhaustion takes place.
If this is the case the US dollar index is set for heavy loss this year. The fact that the greenback is failing to rally on positive data speaks volumes. The market conviction that the FED will keep rates low and not interfere with QE is probably contributing to this.
I would like to add a caveat to the bearish outlook. If the FED were to shock markets and change current policy or policy language a huge market shock could take place. But until that time, the trend is once again bearish.
Some 56 percent of traders towards the US dollar index. The sentiment skew is not that large so I would probably take this current reading to mean that range bound trading contains could set in for a while.
US Dollar Index short-term Technical Analysis
Looking at the one-hour time frame a large head and shoulders pattern has formed, following a continues price drop from the 93.45 level. The bearish pattern will be activated if the price slumps below the 91.66 level, placing the 90.00 level firmly in focus.
It is also noteworthy that the 50 percent correction of the 93.45 level to the current yearly low is found close to the neckline of the mentioned pattern, around the 91.55 level.
Fibonacci analysis shows that weakness under the 91.55 level could trigger additional weakness towards the 91.13 and 90.50 levels.
US Dollar Index Medium-term Technical Analysis
According to the daily time frame, the US dollar index has two possible paths ahead. Either bulls are either building up for an attack towards the 94.85 level or a steep decline is coming after the pair simply staged a 50 percent bear market correction.
Downside targets for the index are found at the 87.50 and 86.00 levels, while the major upside objective above 94.85 is 98.80. Overall, medium-term bears are currently in control of the US dollar.