Home Forex Forex Market Analysis US Dollar Index Consolidates Expecting Further Declines

US Dollar Index Consolidates Expecting Further Declines

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Overview

The U.S. Dollar Index (DXY) develops a mid-term sideways formation inside a long-term bearish trend that looks incomplete. During this year, the Greenback sheds -4.31% (YTD). Although the positive inflation data expanded the price in Tuesday’s trading session, it was not enough to boost the price toward fresh highs.

Market Sentiment Overview

The U.S. Dollar Index (DXY) retreats 0.23% in Wednesday’s trading session by erasing the advance that the Greenback made on Tuesday, driven by inflation data, which exceeded surveyed analysts’ expectations reaching 1.4% (YoY).

Although the data released by the U.S. Bureau of Labor Statistics this Tuesday exceeded the expectations of market participants and Federal Reserve policymakers boosting the price to climb 0.53%, the reading observed would not have a greater impact on the rate decision of the next FOMC broad meeting. Still, it would be more focused on the evolution of the labor market.

The following chart illustrates the U.S. Dollar Index in its 12-hour timeframe. The figure exposes the 90-days high and low range, reflecting that the market participants’ sentiment remains on the extreme bearish side. The price action remains below the 200-period weighted moving average, confirming the bearish sentiment.

On the other hand, the last Commitment of Traders Report unveils institutional traders’ bearish bias, confirming the bearish sentiment exhibited by the U.S. Dollar Index.

Therefore, according to the Federal Reserve policymakers’ expectations, the labor market’s evolution could be a factor contributing to the U.S. Dollar Index volatility increase. On the other hand, as long as the price remains below 94.02 pts and below the 200-period average, the Greenback bias will remain on the extreme bearish side.

Technical Analysis Outlook

The U.S. Dollar Index, in its 4-hour chart, illustrates a sideways movement from a long-term bearish sequence, which seems to be incomplete. The mid-term sideways structure is limited by September 01st low of 91.75 pts, with a top of the sideways range at the level reached on September 25th, located at 94.74 pts.

The above figure shows that the mid-term trading range moves between 91.75 pts and 94.82 pts. This market context suggests that the currencies included in the U.S. Dollar Index basket might continue developing sideways movements in the coming trading sessions.

On the other hand, the Elliott Wave perspective overview reveals that the price developed a three-wave bullish movement from the September 01st low of 91.75 pts, which ended on 94.74 pts.

Currently, the DXY index develops a pause formation in a bearish sequence that could evolve in three waves. This consolidation structure identified as wave ((b)) in black is still in progress.

Accordingly, the U.S. Dollar Index should complete the consolidation movement identified by the short-term sideways channel before continuing with its mid-term bearish trend.

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