The bearish technical picture for the USD index continued once again last week, and much as I expected, ending on Friday with a wide spread down candle, closing the session at 77.618, with the index closing lower on every day. Wednesday’s candle was particularly important as it closed below the 9 day moving average , which until then had offered some hope of a short term platform of support. However, with this key short term indicator now breached, we are now looking towards the low of late January in the 76.82 region, and should we see a close below this level, then expect to see the dollar index decline further, possibly to retest the 75.63 low of November last year, and any failure to hold here could see a deeper move in the longer term towards the 72 area last seen in mid 2009.
As far as the daily chart is concerned with all five moving averages now pointing lower, and the USD index having run into strong resistance from the 100 day moving average, this is giving a very bearish signal for the longer term, with the four subsequent failures to break above this key indicator summing up the bearish picture. The weekly chart supports this analysis, with last week’s down candle failing to break the 9 week moving average which has now crossed below the 200 week average, yet another bearish signal for the US dollar which now looks set to test the 75.50 region in due course followed by the 71.70.
Fundamentally of course, one wonders why the US dollar is not attracting any safe haven status buying at present given the political turmoil and potential confrontation between Iran Israel which would then of course draw the US into any conflict. However, investors and markets appear to believe that this is unlikely, and will no doubt recede in due course, but the more likely cause for continued US dollar weakness is the proximity of March 3rd, a key date for the US Government, when the temporary budget expires, with the potential to see the Government run out of funds – not an pleasant prospect for US dollar investors! So in summary, a gloomy picture for the US dollar, both from a fundamental and technical perspective.