Weak US data and banking tensions excited USD bears earlier this week!
In case you missed it, the US dollar gave up most of its gains for the week after a report showed that US layoffs are growing to the highest levels since 2000 while the rate of job dropouts fell to its lowest level in two years.
Meanwhile, US factory orders also missed its estimates. Not good when traders are already concerned about the US debt ceiling and the Federal Reserve has raised interest rates despite signs of slowing growth.
The US Dollar Index (DXY), which reached 102.40 this week, is now trading near 101.75.
US dollar index hourly forex Graphics by TV
Has DXY fallen enough to attract bargain hunters?
On a technical basis, the index is now standing on an ascending resistance channel that has been in place since late April. Not only that, but its current levels are also in line with an inflection point seen in mid-April.
What makes the buy setup even more attractive is that the stochastic is cold in the oversold territory on the hourly time frame after crossing the 100 SMA above the slower 200 simple moving average.
but…
We cannot rule out fundamental concerns that could drive the dollar lower.
We know from previous debt ceiling discussions that the US dollar tends to weaken at least until a deal is in sight. Why would investors buy the dollar when there is a possibility that the US will not meet its debt obligations?
And at the same time, the Fed raises the interest rate – a likely scenario according to us FOMC Statement Event Guide It may dampen growth and possibly accelerate job losses.
So, unless the Fed reassures the markets that another rate won’t trigger a “hard sell”, or today’s ADP and ISM reports point to a strong labor market, the US dollar could continue to weaken.
For now, I’m looking to sell DXY once the index convincingly breaks below channel support. 101.30 – 101.45 area looks good for initial intraday targets although DXY could probably drop below 101.10 if there is enough momentum.
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