It’s been an interesting week for US dollar bears, as the currency of first reserve bounced back strongly, surging higher on Tuesday and Wednesday ahead of yesterday’s FOMC minutes, and even the apparent confirmation of a pull-back from a June rate rise, seems to have done little to dent the current bullish tone. However, much will now depend on any comments from Janet Yellen on Friday. With the doves now holding sway, a rate hike late in Q4 or early in 2016 seems the more likely prospect. From a technical perspective it is important to consider the dollar index chart over two timeframes. The first is the daily, and the second the weekly.
If we start with the daily chart, above, the current level at 11,833 is now pushing ever deeper into the congestion phase of February and early March which saw the index trade between 11,750 to the downside and 11,875 to the upside, before duly breaking higher in early March. This is a deep area of price congestion. For any continuation of the current bullish trend it will need to be breached, and if so will then provide the springboard for a more sustained move higher.
Moving to the weekly chart, this is perhaps the more interesting, and much will depend on the price action over the next two days. Nevertheless, should the week close as a wide spread up candle, then this will confirm the bullish engulfing candle, with the potential for a longer term reversal and a move back to retest resistance in the 11,980 region.
Moving to the EUR index, the recent bullish sentiment for the euro appears to have run out of steam, with the deep area or price congestion in the 122.70 region, coupled with ongoing concerns over Greece combining to drive the index lower once again, and back to test support in the 120.20 area. Should this level fail to hold, then we can expect to see further euro weakness in due course with a possible move to test the 118.50 area in the medium term.