On Wednesday last week ahead of the US ADP report and NFP, I said that the Dollar index (DXY) was overbought according to technical analysis and because the US ISM Manufacturing report declined to decade-low levels. The Dollar index is no longer overbought according to technical analysis as the price reached the median-line of the uptrend that has been in place since June 2018, which was also the target per last week’s update: USD: Dollar Index at Overbought Levels Ahead of ADP Report.
The Dollar index needed to trade lower on the heels of the string of adverse reports from the US, but the final push was on the GBPUSD and EURUSD rising on the UK potentially securing a Brexit deal in the next few weeks. The Australian and New Zealand dollar have also been rising over the last few weeks as the markets anticipate the US and China will agree to an interim trade deal, and for the US to delay increasing import duty on China imports.
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As the price reached the median line at 98.40, traders have opted to buy the Dollar index causing to it bounce back. The Dollar index was also about to reach the September 20 low at 98.15.
The Dollar might now be able to reach the October 4 low of 98.75 and the October 8 high of 99.24 as long as it trades above the September 20 low. However, if the downtrend gains legs, the index might slide to the September 13 low of 97.86, followed by the lower blue trendline at 97.50. On the price reaching the lower blue trendline, the Dollar index would be considered to be oversold.