Technical Analysis – Dollar index stabilizes 7-day bearish strike near 2-year lows

Christina Parthenidou, XM Investment Research Desk

The US dollar index (futures) found a bottom around an almost two-year low of 93.40 after a seven-day bearish strike, which put the market back on a negative path.

While the Stochastics and the RSI in the four-hour chart signal that the market has reached the edge of the oversold territory as the indicators move upwards, the index has now a long way to go to cross the 97.77 border and hence eliminate fears of a down-trending market. The strenghthening MACD oscillator is also pointing to some improvement in the near-term. In the meantime, however, intermediate obstacles could make the path rocky.

The 20-period simple moving average (SMA) could be the first to stop upside movements around 94.20. Then, the rally could stall within the 94.76-95.10 restrictive region, which encapsulates the 50-period SMA, before all attention shifts to the descending trendline stretched from the 97.77 peak. A decisive close above that line could trigger a more aggressive upside move towards the 200-period SMA currently at 96.43.

In the event the bears remain in charge, driving the index below 93.40, the sell-off could extend towards the 92.53 key support zone.

Summarizing, the US dollar index is probably preparing for an upside reversal, and the 20-period SMA at 94.20 could be there to quickly terminate any attempt higher.