Weekly Technical US Dollar Forecast: Technical Damage Not Undone

 

Weekly Technical US Dollar Forecast: Technical Damage Not Undone

TECHNICAL FORECAST FOR THE US DOLLAR: BEARISH

  • The DXY Index’s rebound in recent weeks has done little to revert the major technical damage sustained in recent months, remaining below the rising trendline from the April 2011 and February 2018 lows.
  • Net-short US Dollar futures positioning remains near its highest level since March 2011, helping feed the nascent narrative that a short covering rally may soon emerge.
  • The IG Client Sentiment Index suggests that EUR/USD and GBP/USD rates will gain in the days ahead.

US DOLLAR RATES WEEK IN REVIEW

The US Dollar (via the DXY Index) posted its second weekly loss of the year, and in the process fell back to the descending trendline from the March and November 2020 highs – the pandemic downtrend. Perhaps more importantly, the DXY Index’s rebound in recent weeks has done little to revert the major technical damage sustained in recent months, remaining below the rising trendline from the April 2011 and February 2018 lows.

Without any bona fide bullish catalysts on the horizon, and two of the components representing 69.5% of the DXY Index, the British Pound and the Euro, appearing poised for further gains, the US Dollar may once again be on its backfoot.

FOREX ECONOMIC CALENDAR WEEK AHEAD

The third week of February offers a mixed economic calendar, with a more global focus (and less so on the United States, politically or economically, with a federal holiday on Monday, shuttering markets). To wit, there are only three items on the calendar that are worth paying attention to from the US Dollar’s perspective.

On Wednesday, the January US retail sales report will offer insight into consumption trends for the world’s largest economy, which is incidentally the largest component of GDP. Also on Wednesday, the January FOMC meeting minutes will be released, which may underscore the Fed’s commitment to its low interest rate regime. Lastly, on Friday, the February US Markit Manufacturing PMI flash is due.

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