Forex Market Outlook: The Dollar Rebound Is Gaining Momentum

The Dollar Rebound Is Gaining Momentum

The Dollar Index is finally in rebound mode. After weeks of down-draft the index hit a bottom and bounced higher. This week’s action has the index above previous resistance levels and looking strong. If not strong, then at least gaining strength and moving higher. Underpinning the move is the data, the week’s economic data points to a solid rebound in the U.S. economy and expectations are high that will continue. The risk for traders now is two-fold. On the one hand, each and every piece of economic data due to come out (for the U.S.) could be stronger than forecast and that will fuel the rally. On the other, there are already signs the rebound is about to hit a wall because of COVID and when it does, if it does, the bottom could fall out of the dollar market.

The DXY is advanced fractionally today but the candle is nice and green. The move shows support at today’s low which is good, and the indicators are bullish. Not only are they bullish, they are both on the rise with plenty of room to run and that implies this rally is just getting started. The risk, technically speaking, is resistance at the short-term moving average. The EMA is just above today’s action and may cap gains in the near term. If the index is able to rise above the EMA a move to $98.50 and then $100 is expected.

The EUR/USD is set up in similar fashion with one exception. From this vantage point, the pair appears to be correcting within an uptrend and about to retest support. If support confirms at the short-EMA the EUR/USD could rebound back to the recent highs and send the DX moving lower. That would, of course, depend on the data and the COVID. Looking to the EU calander, there are few economic announcement worth noting for next week other than consumer confidence and PMI figures. Both of which are only moderately market moving.