Dollar Market Outlook: Bullish Despite Stimulus Efforts

The Dollar Is Poised To Move Higher

With volatility beginning to settle down trend-following traders like myself will find it easier to pinpoint trades. To that end, today’s post is a look at the dollar and the Dollar Index for clues into what may come next. The bottom line, despite a mind-shattering amount of economic stimulus, the outlook right now is bullish. But that could all change, it depends a lot on the data, if the FOMC keeps pumping on the juice and other central bankers don’t it could spell doom for bullish trades. But that is speculation on future movement, let’s take a look at what’s going on now.

The Dollar Index experienced quite a bit of volatility over the past month/6 weeks but that appears to be quieting. The index has been winding up around the $100 level with price action in the lower half of the range. The bias is bullish however because the index is confirming support at higher levels and sitting above the 30-day EMA.

The indicators are consistent with a bullish entry, a cautious bullish entry, because stochastic is firing a crossover right now. The MACD is still bearish although the peak is subsiding, an indication that resistance and bears may still have control. In the near-term, the risk for the Dollar Index is resistance at the $99.75/$100 level. Price action is pausing there, showing sellers present, but I don’t think this will last long. Once the $100 level is surpassed a move up to retest the recent high is a likely scenario.

The EUR/USD pair is in a similar state although the bias here is to the downside. After a period of extreme volatility this pair has confirmed a new trading range and looks like it will retest the bottom. The pair just confirmed resistance at the short-term EMA and a previous point of support so lower prices are the most likely scenario. The indicators are more mixed on this chart than the DXY. The stochastic paints a slightly bearish picture but it and MACD are trending near the middle of their ranges indicating a range bound situation.

The USD/JPY looks like it may be in a trading range as well, but one with a bullish bias. The pair appears to be making a nice little double bottom at the 107 level although it is a bit early to say so. The indicators are consistent with such a pattern if not showing bullish signals. With the Dollar Index pointed higher I’d hate to bet against this pair moving up without a break of support at the 107 level. If that happens the USD/JPY could move down to 102, if not a move up to 112 is the likely scenario.