Mid-Week Technical Outlook: Time for a Dollar Rebound?

After an explosion of vaccine optimism propelled global stocks to record highs earlier in the week, questions were later raised over how the drug will be produced and delivered which essentially dragged investors back to reality. Persistent concerns around the U.S fiscal stimulus and possible delay in the transition of power to President-elect Joe Biden dampened the market mood while surging coronavirus cases in Europe and the United States rubbed salt into the wound. With uncertainty still the name of the game and the core themes weighing on global sentiment firmly intact, king Dollar could make a comeback.

Talking technicals, the Dollar Index (DXY) remains in a wide range on the monthly timeframe with support at 92.00 and resistance at 95.00. The last time prices traded outside these regions was back in June 2020. Over the past few weeks, it has felt like the Dollar has been waiting for a fresh directional catalyst to breakout of the current range. If bulls are able to conquer the 95.00 resistance level, the Dollar Index could challenge 98.00 and beyond. However, a breakdown below 92.00 is seen opening the doors back towards 90.00.

It is the same story on the weekly timeframe. Prices are respecting a bearish channel; however strong support can be found around 92.00. Lagging indicators such as the 20 Simple Moving Average and MACD point to the downside. However, a daily close above 94.00 may trigger a move towards 94.80 and 95.00.

Before we knuckle down on the daily time, it must be kept in mind that there a wide selection of fundamentals themes influencing the Dollar. On Thursday, all eyes will be on the latest US inflation and jobless claims data which should provide fresh insight into the health of the largest economy in the world. Tomorrow’s U.S. inflation numbers expect to see a 0.1% increase to 1.8% in the core number, which excludes food and fuel while CPI is expected to dip to 1.3% this from 1.4%.

Focusing back on the technicals, the Dollar Index is trading above 92.70 as of writing. A solid close above the 93.40 level could pave a way towards 94.00 and 94.65. If 92.70 proves to be unreliable support, the DXY may slip back towards the 92.00 support.

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Lukman Otunuga

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman provides in-depth analysis on the global currency and commodity markets and is often quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo. Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on a technical and fundamental analysis of the global currency, commodity, and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions