Home Forex Forex Market Analysis US Dollar Index Advances Boosted by Surprising Economic Growth

US Dollar Index Advances Boosted by Surprising Economic Growth

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Overview

The US Dollar Index accelerated its gains on Thursday’s trading session boosted by the surprising economic recovery in Q3 2020 that advanced 33.1%, beating analysts’ expectations. Nevertheless, although Greenback’s intraday recovers, the price could see a new decline in the coming trading sessions.

Market Sentiment 

The US Dollar Index (DXY) raises on Thursday trading session by 0.54%, boosted by Q3’s GDP growth rate, which beat the analysts’ expectations.

The US economy expanded in the third quarter by 33.1% in Q3 2020, beating the analysts’ consensus of a 31% raise. This reading is the biggest expansion in the economy following the previous  Q2 period, which unveiled a record 31.4% plunge triggered by the coronavirus lockdown.

The following chart exposes the US Dollar Index in its daily timeframe. The figure unveils the 90-day high and low range, the price action moving mostly sideways in the bearish sentiment zone. 

Likewise, the intraday activity develops a strong bullish movement during its Thursday’s trading session, which looks accelerating, supported, as already said, by the surprising Q3 GDP growth, whose figure was released on Thursday before the US session’s opening bell. 

In summary, the US Dollar Index context shows that the big picture of the market is on the bearish side. However, the intraday activity reveals an upward thrust representing an upward correction of the Greenback’s primary bearish trend.

Technical Analysis Outlook

On the technical side, the US Dollar Index unveils its price movements in an incomplete corrective formation, which still could visit fresh lows.

The next weekly chart and in log scale reveals the DXY under the perspective of the Dow Theory, which exposes to its primary trend developing an incomplete correction of the rally that the Greenback began in early May 2011 and found resistance at 103.82 in late December 2016.

Once the Dollar Index found fresh buyers, the public activity raised, driving the price towards the level of 103.82, where DXY began to develop a corrective move, which remains in progress. The first decline fell to 50% of the previous rally, finding support at 88.25, where the price reacted, developing an upward sequence.

Actually, the price action develops a consolidation structure following a sideways formation, which is in progress since early January 2018. The third segment, which looks in place, accumulates a retracement of around 66% of the corrective formation’s second internal leg. This reading leads us to observe that the current decline could be in an exhaustion stage.

The long-term Elliott Wave perspective for DXY marks its advancement in an incomplete flat pattern (3-3-5), which currently advances in its wave C of Minor degree labeled in green. This current leg could see further declines in the coming trading sessions.

As illustrated in the next 2-day chart, DXY advances its wave ((iv)) of Minute degree identified in black. According to the alternation principle, the internal segment should take more time than wave 2. In this regard, the level of complexity of this corrective formation should be higher than on the second wave. In other words, the fourth wave could be a triangle formation or a double or triple correction.

Finally, the wave C’s potential bearish target can be located below the mid-February 2018 low; it is near the 87.5 level, where the Greenback could start to develop a new bullish cycle of upper degree. The invalidation level of the current bearish scenario is placed at 98.50.

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