US Dollar: Have Talks Of Its Downfall Been Exaggerated?

The US Dollar has been a little lacklustre for some time, but talks of its downfall may have been greatly exaggerated. It has been quite clear now that the U.S economy has had a bit of a tough time; especially with a painful winter which kept consumers at home and job opportunities sparse. But now we are in the summer and things are starting to shine brightly for the U.S economy as a whole and a result the US dollar is beginning to climb the charts.

A look at the week ahead for the US shows the magnitude of movements to come.

Monday

Pending home sales m/m – 14:00 GMT

Tuesday

Consumer Confidence – 14:00 GMT

Wenesday

ADP Non-farm employment change – 12:15 GMT

Thursday

Unemployment Claims – 12:30 GMT

Friday

Non-farm Employment Change m/m – 12:30 GMT

Unemployment Rate - 12:30 GMT

Final Michigan Consumer Sentiment – 13:55 GMT

ISM Manufacturing PMI – 14:00 GMT

All of the above are major events on the trading calendar; in fact there are quite a few more that I have not even listed currently. One thing is clear though when it comes to all of these forecasts, they are all currently positive over the previous month’s data. So markets are certainly expecting stronger results from the U.S. economy as a whole.

This can translate into a number of things on any given chart, but one that is plain to see is the dollar index at present, which has so far been looking more and more bullish, after breaking through a long term bearish trend line which has been in play for months.

USDX, D1

It’s clear on the chart above that the US dollar Index is looking to move higher and the bullish breakout has been greeted strongly by markets. What has been leading the charge higher as well has been the recent collapse of the Euro against major trading partners, as Draghi has talked down the Euro and looked to provide stimulus.

For people now looking to trade the dollar index it’s clear that it aims to go higher and resistance levels should be noted.

USDX, D1

Currently the dollar index is looking to range higher on the charts and is looking likely to form a bullish channel in the short term. Resistance levels can be found at 81.403 and 82.412 as both these points are major levels of resistance and markets will likely look for points to exit.

However, in the long run, the dollar index is quite undervalued and there is certainly a lot of room for further movement higher and for markets to hit higher highs. Any long term play should be looked at in the present market; especially as the euro looks set for a fall and as the US economy starts to make inroads again on the path to recovery.