Dollar index - what did we learn last week?
Is the upside momentum in the dollar over?
It was a rough week for the dollar after the FOMC meeting last week as the Fed's change in stance led to a significant decline in the greenback, which culminated in what appears to be a firm break below the 200-day MA (blue line) for the dollar index.
That will represent a first meaningful break below the key level - I wouldn't put too much emphasis on the drop back in March - since it traded below the level in May 2018. It's very much a similar case for EUR/USD as well (since the dollar index is largely a mirror of that) and the technical repercussions here may potentially be rather large.
The break now indicates that sellers are in control for the first time in a long time. But looking at the weekly chart:
Buyers may take some comfort that the index hasn't yet descended below the 200-week MA (blue line) @ 95.974. There is also some minor support around 96.000 but if we start to revisit levels below that, the "great dollar trade" since last year may potentially run into rough waters over the next few months.
The constant argument over the past twelve months is that the dollar is the best of a bad bunch. There's valid reasoning for that but no matter what, as a trader you can never argue with the charts because ultimately that determines the basis of your entry/trade.
In this instance, last week's break below the 200-day MA is a key moment and represents a significant shift in the technical bias. For all the good things that the dollar still has going for it, they will matter little unless buyers start finding conviction again to regain some control in the bigger picture.
That is setting up this week's trade talks to be an even bigger risk event for markets as it will ultimately reaffirm the sentiment we're seeing to start the week. Looks like Trump may very well get his wish after all.