The dollar index has been showing some upward movement in trading recently, although it remains within a volatile range for the sixth consecutive day. The daily candlesticks of the past two days have long tails, and the index has been consistently closing above the 10DMA, indicating a bullish bias in the short term.
There is currently some fresh strength in the market, pushing the index towards the 200DMA at 104.13. If it breaks above this level, the next significant barrier is at 104.26, which is the Fibonacci 38.2% retracement level of the move from 105.78 to 103.31. A sustained break above this level would signal further bullish momentum and could lead to more recovery in the index.
However, there is a risk of a potential stall at the current levels, as the 14-day momentum indicator is still in negative territory and the stochastic is starting to reverse from the overbought zone. Traders are advised to watch for a clear breakout above either 104.26 on the upside or 103.97 on the downside for a firmer direction signal.
The focus for the day is on fundamental factors that could impact the dollar, particularly the release of US PCE data, which is the Fed’s preferred inflation gauge. This data will provide more insights into the timing of potential rate cuts by the Federal Reserve. The market currently expects the Fed to keep rates unchanged at the upcoming policy meeting but anticipates three rate cuts by the end of the year, with expectations for the first cut to come in September.
Key resistance levels to watch for in the dollar index are at 104.26, 104.34, 104.55, and 104.67, while support levels are at 103.97, 103.80, 103.67, and 103.31.
In conclusion, while the dollar index is showing signs of bullish momentum in the near term, traders should remain cautious of potential reversals at key resistance levels. The upcoming US PCE data release will be closely watched for further clues on the Fed’s future monetary policy decisions.
