USD Index Outlook: Bulls Eye Corrective Rally But Downside Pressure Persists

After a strong advance on Wednesday following the hawkish FOMC minutes, selling momentum returned to the USD Index (DXY) on Thursday. The lackluster of US long-term bond yields and the thinning of bullish sentiment around the USD Dollar contributed to Thursday’s decline.

Initial Claims rose by 444K from a week earlier, bettering expectations. However, any positives from the data were quickly nullified by the steep drop in the Philly Fed manufacturing index. This metric came in at 31.5, markedly lower than April’s 50.2 and also worse than the expected figure of 40.8.

The USD Index is 0.38% lower as of writing.

Technical Outlook for USD Index

Thursday’s decline is testing support at 89.711. Further pressure on this support level could cause it to collapse, clearing the way for 89.50 to become the new downside target. 89.18 becomes a new target if the decline continues below 89.50.

On the other hand, a bounce at 89.71 allows the bulls to retest the 90.229 as part of a corrective recovery. 90.503 and 90.965 become additional targets to the north if the ascent above 90.228 is successful. This move could be seen as being part of the breakout of the falling wedge pattern, with a projected move towards 

91.26/91.50. However, this move may be a corrective rally within the context of the downtrend. All resistance targets mentioned are potential points at which selling on the rally may occur.

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Dow Jones Daily Chart

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