The dollar index has begun a race to the bottom, reaching a two-week low on Thursday. These economic fundamentals combined with negative market sentiment are exerting tremendous downward pressure on the currency. On Monday, the index faced further selling pressure, as fears about the US manufacturing sector’s downward spiral deepened. This has cast doubt on upcoming rate cuts, adding more fuel to the dollar’s instability.
Now the dollar index is at a very critical juncture, with its 200-DMA at 99.43. Not yet. Resistance levels come in at 99.25, 99.43, 99.70 and the big round number at 100.00. The index is nearing the underside of major supports at 98.85, 98.60, 98.34 and 98.07. Traders are especially concerned with the creation of a bull trap at the $100 mark. This focus has contributed to a long-term bearish dollar index sentiment.
As price action traders know, the dollar index is most likely in the process of making a major reversal pattern on its monthly chart. A definitive break under the $98.85/60 area will be required to indicate a possible turn back on the daily chart. As noted last week, the key support at $98.85 has become more crucial. The index is now sinking back even further below its now broken 200, 20 and 10 DMAs.
Compounding the bearish view is the position of the 14-momentum indicator, which continues to be in negative territory for the dollar index. NYSE’s stochastic indicator suggests that the index is approaching an oversold position. With recent trends unreversed, even steeper declines may be yet to come.
These pressures on the dollar index are added to by the continued pain in the US manufacturing sector. As this crucial sector’s performance wobbles, it amplifies the cloud of uncertainty hanging over U.S. economic growth prospects. Analysts are understandably all abuzz monitoring these developments, as they could offer much clearer signals about what to expect from future monetary policy pivots.