The U.S. dollar has experienced strength in recent weeks against its counterparts in Europe. Here's where Dr. Gregor Bauer believes that the U.S. dollar is heading soon.
| | | | | | What's Next for the U.S. Dollar |
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| Dear Reader,
The euro has been falling against the U.S. dollar.
Previously, a rise had led the currency pair to just below 1.19, only for weakness to reappear in the following days.
Last Friday, the currency pair went into the weekend with a value of 1.1760. This mark also represents the low for the week.
Will the U.S. dollar regain strength?
Let's Look at the Dollar Index
The U.S. Dollar Index was introduced in 1973 and is listed on the futures exchange ICE (Intercontinental Exchange).
It's possible to trade the dollar on the futures market, but the turnover is very low.
Therefore, the U.S. dollar index is used to find the strength or weakness of the U.S. dollar against the index's components.
Until 1998, the German mark, French franc, and the guilder, Belgian franc, and Italian lira were listed individually.
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| | | | | | | | | Since 1999, these have been bundled in the euro, so that today it has the largest share in the U.S. dollar index.
Meanwhile, 57.6% of the index is made up of the euro, 13.6% of the Japanese yen, and 11.9 % is added by the British pound.
The rest is made up of the Canadian dollar, the Swedish krona, and the Swiss franc.
The index is formed from a basket of the most important industrial currencies and serves as a yardstick for the strength or weakness of the dollar or the euro.
Conversely, if the U.S. dollar index rises, the euro falls.
Resistance Reached
Below is the long-term chart of the U.S. dollar index starting in 1985. Each candle contains the price data for an entire month. Up until 2014, there were two major downward trend movements.
The first extended from 1985 to 1992, followed by a multi-year counter-trend upward movement that lasted until 2001. This was followed by another countermovement that took the index south.
From 2014, the U.S. dollar index rose again strongly to the round mark of 100 points. However, since then, it has been going sideways for several years now.
Two months ago, the index tested the price range around just under 90 points for the second time, only to turn upward again from there. Currently, a long-term resistance zone has been reached.
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| | | Source: Taipan.de
Is the breakout to the upside coming now?
In the enlarged section of the monthly chart, these two movements can be seen. Taking a closer look at this section, we can see an increased probability of the U.S. dollar index crossing the resistance zone.
On the other hand, if we look at the weekly chart, the situation does not look like that at all. Therefore, I have included the corresponding chart for you below.
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| | | Source: Taipan.de
In it, you can once again see the red resistance zone, but this time supplemented by a resistance line inserted in light green, based on the 2019 and 2020 lows and the current year's highs. I expect the U.S. dollar index to attack this green resistance line once again in the next few days, but then profit-taking will set in. The 200-day line in blue at 91.32 U.S. dollars would be the downward target. After reaching this, it may continue to go sideways.
I'll be back to talk more about the dollar this week.
Enjoy your day, |
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| | | Dr. Gregor Bauer
Chief Analyst, European Markets |
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