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Quek Ser Leang at UOB Group’s Global Economics & Markets Research gives his views on the prospects of the US Dollar Index (DXY).

Key Quotes

“We first detected the weakness in USD Index two months ago. In the… update from 03 Jun 20 when USD Index was at 97.45, we stated clearly that ‘the outlook for USD Index is negative’ and that ‘the next support level of note is at 95.50’. USD Index subsequently dropped to 95.72 and traded sideways. When USD Index broke 95.50… we held the view that ‘the current movement is the next leg lower within USD Index overall down-trend’. At that time, we noted that the 6- year rising trend-line at 94.30 is a critical support. We highlighted that ‘the overall technical readings clearly point to a weaker USD in the months ahead’ and added, ‘a break of the critical support is not something to be trifled with especially when we are hard pressed to identify a nearby support level of note’.”

“USD Index cracked the 94.30 critical support last Monday (27 Jul) and within the span of a few days, hurtled lower to a low of 92.55 on Friday (31 Jul) before recovering to close lower by a whopping -4.15% at 93.35, its biggest 1-month decline in a decade.”

“The question from here is whether USD Index can maintain the current furious pace of decline as weekly RSI is already at its most oversold levels since early 2018. That said, downward momentum is still powerful and the next support is not until 91.50. This level is another critical support as it is not only at a rising trend-line that started from 2011; it is also near the bottom of the monthly Ichimoku cloud. While a break of the critical support is not ruled out, oversold conditions on the weekly chart suggest the 2018 low of 88.25 is not likely to come into the picture, at least for the next 1-2 months. The round-number of 90.00 is acting as a relatively strong support ahead of 88.25. On the upside, resistance is at 96.30 followed by the moving averages at 97.65. The latter level is acting as a solid resistance and could remain intact, possibly for the next several months, if not longer.”