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The US Dollar Index is starting to recover higher, after briefly selling-off after Monday’s disappointing ISM Manufacturing PMI report, which was a major miss, and four points lower from March’s 64.7 reading.
Market participants were caught wrong sided, as expectations were high that manufacturing activity would hit 65, which would beat last month’s 37-year high. Worryingly, the Employment Index and New Order inside the report also plunged lower.
Traders are now buying back into the greenback, following the news that the Biden administrations infrastructure spending bill is unlikely to be as large as thought because many democrat party members may oppose its overall size, and a return of inflation fears.
From a fundamental standpoint Friday’s Non-farm payrolls job report is extremely important for the greenback. Should we see the April payrolls job reports miss expectations then it could dramatically push back the notion that the Federal Reserve may consider raising rates and tapering QE any time soon.
The impact of a weak jobs numbers on the market is likely to see more US dollar weakness, and stock market strength, as the FED will need to continue pledging low interest rates and more bond buying.
On the technical front the US dollar index is still technically bearish below its 200-day moving average, meaning that the trend still remains to the downside. Additionally, the Parabolic SAR indicator on the weekly time frame is still issuing a sell signal.
Some 72 percent of traders are bullish towards the US dollar index. The sentiment skew means that traders are becoming overly bullish towards the greenback. This could be creating the perfect conditions for a bearish reversal in the US dollar index.
US Dollar Index short-term Technical Analysis
Looking at the one-hour time frame a large, inverted head and shoulders pattern has formed, following bears failure to breach the 90.00 level on numerous times.
The bullish price pattern will be activated if the price rally above the 91.40 resistance level, placing the 92.40 level firmly in focus.
It is also noteworthy that the US dollar index remains below its 200-period moving average on the four-hour time frame while the price is capped under the 91.90 level.
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US Dollar Index Medium-term Technical Analysis
According to the daily time frame, the US dollar index has formed a huge head and shoulders pattern, and the price remains below the neckline of the typically bearish price pattern.
The pattern is projecting a decline towards the 89.00 support area if the index remains below the 91.30 level. It is particularly noteworthy that an even larger head and shoulders pattern will form if the index falls towards the 89.00 level.
According to the overall size of the potentially much larger pattern the index could fall towards the 85.00 level over the medium-term.
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