US Dollar Strength Comes Back - But Can It Continue?

Talking Points:

- US Dollar strength has shown since this week’s US Open, and the Dollar has retraced as much as 38.2% of the pullback that started a week-and-a-half ago. The big question is whether the Q2 bullish trend is ready for resumption, and a key data point for that theme is on the calendar for Thursday of this week, with the release of June CPI numbers out of the US.

- Showing with perhaps a greater degree of prominence has been a return of equity strength in US indices. The Dow Jones Industrial Average broke-out to fresh three-week highs yesterday, and the S&P 500 appears set for a challenge of the four-month high that was set in March. Also of note from the risk-on side of the ledger is a return of Yen-weakness, as we looked at for one of our Q3 themes of interest.

- DailyFX Forecasts have been updated for Q3 and are available on a variety of currencies such as the US Dollar or the Euro: Click here for full access: DailyFX Trading Guides page.


The US Dollar has finally found a bid after a pullback in the currency continued into the start of Q3. After failing at the level of 95.53 on DXY in late June, the Dollar started to retrace as we moved towards the close of Q2, and that sell-off lasted into yesterday’s price action. Yesterday morning saw a bit of support set around 93.70, and bulls have been at work ever since, helping to produce a 38.2% retracement of the bearish move that started a couple of weeks ago. This topside move has included a break back above the key support zone of 94.20-94.30, as well as a bullish break of the bearish trend-line that’s defined the past two weeks’ price action; and this begs the question as to whether the US Dollar’s bullish trend is back in order and ready to resume.

On the hourly chart below, we can see where the bullish resumption move is still rather new, and the bearish short-term trend has not yet been technically reversed as marked by a challenge of the 50% marker. But – there are a few areas of interest for higher-low support, and if we are able to take-out the 50% retracement of this move at 94.62, the door is open for bullish continuation in the Dollar, targeting the 95.00 level followed by the 95.53 double top. For drivers – the CPI report sitting on the economic calendar for Thursday morning will likely be a key determinant as to whether bulls are able to regain control here.

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