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The US dollar index is showing signs of life again at the start of the week, as the rebound in the buck, which started last Friday, continues to show signs of turning into a more sustainable recovery.
Bonds are also having a positive effect on the foreign exchange market. US futures are being dragged lower by the surge in Treasury yields today, with 2-year yields and 10-year yields revisiting levels last seen before the pandemic struck.
Bearish sentiment has also hit global stock prices, prompting the buck to benefit from safe haven buying, with Nasdaq futures down by over 1%, and the S&P 500 futures are also down 0.5%.
European futures are in the red, clearly showing that a risk-off mood is in place going into Tuesday’s session. The euro and the pound are laggards in the major currencies space, with the Canadian dollar performing the best against the US dollar due to stronger oil prices.
Technical traders need to keep a close watch on the 94.90 to 95.00 support region when trading the buck. This is the key breakout from last year, and it is a great sign that the US dollar index has already bounced from this key technical spot.
A loss of the 95.00 to 94.90 area would be hugely bearish for the US dollar index. However, the initial signs look good, especially US bond, that the buck could rebound sharply this week.
The ActivTrader market sentiment tool is showing that some 93 percent of traders are bullish towards the US dollar index. This clearly shows that the retail crowd is not buying the bearish US dollar negative. I can’t say I disagree.
US Dollar Index short-term Technical Analysis
Looking at the four-hour time frame, the technicals show that the US dollar index could be forming an inverted large head and shoulders pattern, after bouncing around the 94.60 price zone.
According to technical analysis, a rally from current levels towards the 97.00 level is needed to solidify the structure of the typically bullish price pattern.
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US Dollar Index Medium-term Technical Analysis
The medium-term picture for the US dollar index still looks to be very bullish to me, and if bulls can continue recover the price above the 95.00 level this week then the worst could be over.
We have already seen a key technical test of the former breakout spot for the US dollar index of its multi-year price range, around the 94.60 level. It is a great sign the buck has survived the test and bounced.
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