US Dollar Index – Technical and Fundamental Analysis Update

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It’s been a while since we last took a look at the US Dollar Index (DXY), so I thought it was time we analyzed the USDX technically and fundamentally. As I’ve stated countless times on my blog posts, there are two sides to every Forex trade. Both technicals and fundamentals are important deciding factors as to where a currency is headed to next.

Let’s jump straight into it.

What do the Technicals Say?

Based on the technicals, here’s what we have:

  1. We have a descending trend-line (purple) on the daily that we are respecting (at the moment).
  2. Additionally, we are producing lower highs and lower lows.
  3. We are coming off a key resistance zone that spans from 97.47 to 97.63. This resistance zone has held the DXY for most part of the year.
  4. Price will most likely head back and retest support at 96.50.

Overall Technical Bias : Bearish

What do the Fundamentals Say?

  1. The Federal Reserve is looking to cut rates, at least twice before the year ends.
  2. The economy is growing for the 11th consecutive year, but global tensions are weighing on business owners.
  3. Consumer Price Index has increased, indicating an increase in inflation (good for economic growth in moderation).
  4. US-China trade negotiations are still ongoing and an agreement is yet to be in sight. The longer this takes to play-out, the worse it will be for American businesses that rely heavily on Chinese exports.
  5. US is still waiting on the European Union to take action on Iran pushing the limits of the nuclear deal. European Union’s negligence can lead to back-channels for payment of Iran’s oil. Such an action, can cause members of the European Union to continue to trade with Iran, and thus put their ties with the United States at jeopardy.

Overall Fundamental Bias: Bearish

Based on our analysis, it seems that the US Dollar will continue to show weakness, at least until global tensions return to their normal levels. The DXY on the daily is gearing for another visit to 96.50, and with ongoing trade fiasco, such a move can be easily facilitated and completed in the coming weeks. A word of advice to those buying the USD, or selling against it, be cautious as the overall outlook has remained bearish.

 

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