Could We Expect a Big Drop in the US Dollar Index Next Week?

  • Traders are awaiting news to be released at the beginning of next week related to US Index: Unemployment Claims & CPI.
  • COVID-19 is still spreading among US states with no vaccine found.
  • The bears already took the lead last week, by pushing the price index from 100.95 to 99.30.

Technical Analysis:

Monthly Time Frame:

The index is facing pressure since it touches a monthly resistance line with a value of 103.21. Plus, it fails to breakout upward the 61.8% level of Fibonacci sequence that is acting as a resistance.

Moreover, the US dollar index could not close higher than the previous month. So, the index is under test of reversal. Long term, the fundamentals are not showing any sign of an appreciation of the dollar.

US Dollar Index - 1 Month Chart

4-Hour Time Frame:

When looking at a smaller time frame, the dollar index was able to break the uptrend (white line) after two attempts while marking a big bearish engulfing candle.

Additionally, the index respected the 20-SMA historically, and the chart is showing that the price is below it. Bears are stronger than the bulls.

Finally, the MACD marked a hook (highlighted in yellow) between the two lines which is a sign of a reversal. Therefore, next week this index should show more bearish movement along with the negative news that will show up on Wednesday, and Thursday.

US Dollar Index - 4-Hour Chart

Fundamentals Analysis:

Next week, two major news events that will affect the US index will occur.
With the release of retail sales on Wednesday, and unemployment claims on Thursday, we should expect significant movements for the US Dollar.

Retails sales are expected to show a massive drop since the United States is in lockdown.

Unemployment claims are believed to mark a vast increase since millions of Americans filed for unemployment. Many corporations and companies already shut their doors and fired their employees.

Furthermore, with COVID-19  spreading more and more throughout the United States, and no vaccine found, the US Dollar will show more depreciation in the next days.

By combining the technical aspects of the US index and the fundamentals behind this currency, both show a bearish movement marked on the USD index chart.

Short term, there is no sign that COVID-19 is coming to an end. Some analysts are already talking about a significant recession, even bigger than the “Great Depression” that took place during the 1930s.

Jose Gravado


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