It’s no secret that the U.S. Dollar has been one of the top performers over the last few weeks, and from its March low of 89.23, the Dollar index (DXY) has risen by 6.52% without any major pause in the uptrend. This has significantly reduced the risk-reward ratio for fresh long positions in the dollar index, as a stop loss on a new position would need to be larger than the potential reward. This could explain why traders are reluctant to buy the Dollar at the start of the new week.
Second, last week the dollar index failed to take out its September high of 95.17 despite better than expected U.S. NFPs. This is a sign that fundamental traders are also giving up on the dollar in the short-term as they reduced their exposure, despite the data supporting Fed’s plan to raise rates.
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From a technical point of view, the dollar index is now trading sideways between this week’s low of 93.68 and the September high of 95.17. With the price trading sideways, my bias is neutral, but on a break to this week’s low, I suspect the dollar index is at risk of trading lower as traders further reduce their bullish exposure.
As for a bearish target, I suspect the index might be able to give up 38.2% of the bull leg from the March 16 low, and this would take the price to the 92.85 level. The alternative scenario is a break to the September high; here I suspect the price might be able to reach June 5, 2017, high of 96.52.
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This article was written by Alejandro Zambrano, Chief Market Analyst, TradeCaptain.com, and AmanaCapital.com.
This article was originally posted on FX Empire
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