Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

The Dollar Index Takes A Stab At 88.00 Resistance

Published 21/11/2014, 12:39
Updated 18/05/2020, 13:00

The dollar is in demand today as the euro and the pound give back their recent gains, this was triggered by ECB President Mari Draghi who was speaking at the European Banking Conference in Frankfurt. He focused on inflation and said that some inflation expectations are excessively low. This is significant since the ECB’s mandate is to promote price stability in the medium-term.

If inflation expectations are also falling then the ECB should feel motivated to take more accommodative policy action. Draghi is chomping at the bit to take steps towards QE, and for the second time this week he has said that the ECB would broaden its purchases (of bonds) if its current policy to boost inflation does not work.

QE in December anyone?

While the ECB never pre-commits to policy (or, so they say), the fact that Draghi openly touted the prospect of QE in Frankfurt is worth noting, since the Bundesbank has been resistant to the idea of sovereign bond purchases. If Draghi is able to persuade the Germans that QE is the only answer to the ECB’s problems then QE could be on the cards for early 2015.

This is what the market is currently pricing in, and why the euro is under pressure and the USD is clawing back some lost ground.

The technical picture: could 90.00 be on the cards?

The fundamental picture is supportive for the buck right now, and the technical picture also suggests that the dollar index could make a decisive break of 88.00. The US Dollar Index has tested resistance at 88.00 three times since the 7th November, as you can see in the chart below. The pullbacks have been shallow, suggesting that the bulls still have control; they are just taking a breather. Since this level has been tested repeatedly in the last two weeks, we believe it could eventually be broken, which would open the way to 90.00 – a key psychological level and the highest level since 2006.

If we get a weekly close above 88.00 later today then it could herald another leg higher for the dollar against the EUR and the GBP, with 1.55 a possibility in GBPUSD, and 1.20 a potential for EURUSD.

Conclusion:

  • ECB President Mario Draghi has been touting the prospect of QE once again, which is weighing on EURUSD.
  • The dollar index is testing a critical level of resistance.
  • The market is making its third attempt to take 88.00 in DXY. This suggests to us that the bulls have control and we could clear this level in the coming days, which may open the way to 90.00.

Figure 1:

Dollar Index Daily Chart
Source: FOREX.com and Bloomberg – please note this prices on this chart do not represent the prices offered by FOREX.com

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.