US Dollar Index – Technical Analysis Update WC 12th November
Market Sentiment Overview – The US dollar index has seen steady gains this week after experiencing a drop back to the 80.30 previous resistance area, which then acted as support during the aftermath of the victory by incumbent President Obama. The dollar gained versus its major currency counterparts on risk aversion flows, as the greenback reversed its previous losses and then some.
Now the elections are over, financial market participants are facing the reality that a resolution of the “fiscal cliff” is key in the near term. Risk assets have seen extended downside moves with the S&P 500 and Dow experiencing the worst weekly basis decline since June; the US dollar index has gained accordingly.
US Dollar Index Analysis
- The previous US dollar index resistance around 80.30 acted as strong support and marked the weekly low. This area is aligned with the converging 100 and 200 period daily SMA’s (simple moving averages). Heading into the week of 12th November this may be seen as near term potential support on any move lower.
- In the event of a continuation higher, the 50% retrace of 84.1 > 78.6 has confluence with the previous support lows around 81.16 – the 18/6/2012 daily low. This area could see some form of resistance if hit.
- The key EUR/USD currency pair, with a 57.6% US dollar index weighting, is trading at 2-month plus lows after seeing a prolonged move under previous 1.2830 area support and the 200 period daily SMA.
- This weeks COT report shows the EUR FX (CME) net short position increased from 58K to 67k. The Japanese yen has the second largest USDX weight at 13.6% and JPY shorts were marginally higher, at 40K versus 37K on the previous week.
- Treasuries are now experiencing the longest string of weekly gains since July. The yield on the benchmark 10-year note has dropped the most since the week ended September 29th. The 10-yr yield has declined by 11 basis points to 1.61%.
When considering the above – we see no reason to expect a major change in the near term bullish trend for the US dollar index, in context of the current fundamental backdrop and potential for deleveraging. We will however be monitoring price action around current levels to see if there is a reaction to the resistance confluence area.
US Dollar Index Daily Chart (Figure 1)
US Dollar Index Weekly Chart (Figure 2)