Since making an 11-year high on January 26th, the US dollar is on track to have its first consecutive weekly decline since October. Price action on the weekly chart shows that the strong advance may find tentative support from the 23.6% Fibonacci retracement level of the 2014 May low to the noted January high of $95.85.
The slide that occurred this morning may have been driven by the Trade Balance release that highlighted a downturn in exports. If we continue to see the strong dollar hamper exports, GDP forecasts will most likely be revised lower. If we continue to see weaker economic data, the Fed may have to forget the potential rate hike that some were anticipating either in June or September.
While the bullish stance is currently being tested, the dollar should be bought on any pullback. If the noted 23.6% Fibonacci retracement level does not hold, the 38.2% Fibonacci level at $89.38 could provide the next major support level. If that level is breached, a downward slide may target $87.39.
To the upside the century market is my primary upside target, with $101.88 providing critical resistance. The dollar index bullish trend may become choppy over the next few months, but ultimately it should remain intact.
The trade: Buy Dollar Index at 91.85 with a stop loss at 89.85 and a take profit at 97.85. The Risk/Reward Ratio is almost 1:3.
Edward J. Moya
WorldWideMarkets Online Trading