The U. S. Dollar (DXY Index) hit a low of 92.55 last week and has since moved up just about 1% off of that low. While not a huge gain from a percentage point of view, given the U. S. Dollar’s fairly deep fall since the January highs this is a relatively significant move up off of the lows. Furthermore, the structure up off of this 92.55 low is suggestive that the U. S. Dollar should still move higher in the near term.
There are still several price resistance levels that the DXY needs to break to signal that this move is something other than just a short term corrective bounce. Given where we are in the pattern we may not have an answer to this question for several months to come. The structure of the move up off of the lows and the overhead resistance levels should help give further guidance in this regard.
Last week I discussed the composition of the DXY Index. In particular, how heavily weighted it was towards the European currency pairs. The EUR/USD currency pair has a very overweight position in the DXY Index making up 58% of the index itself. This makes it difficult for the DXY index to move without an inverse move of the EUR/USD currency. So with the EUR/USD making up such a large portion of the DXY index, it is often helpful to keep a close eye on the pattern of that individual pair as well as the DXY itself.
Unfortunately, the pattern on the EUR/USD is not as supportive of the same strength that the DXY itself is displaying. So, while the pattern of the DXY suggests higher levels prior to making a local top, the pattern on the EUR/USD is more supportive that this move up on the DXY may be a bit more short-lived and still has some more work to do to the downside prior to making a more significant bottom.
This post was published at GoldSeek on 9 August 2017.