USD Bullish Reversal Risks

The decline in the US Dollar has seen the Dollar index trading lower within a tight bearish channel over recent months. Price has recently broken below the rising trend line from 2021 lows and is now sitting on support at the 89.64 level. While the trend is bearish for now and both RSI and MACD are bearish, it is worth noting bullish divergence on both indicators over the most recent leg of the decline.

In consideration of this, there are upside risks given the amount of Dollar selling over recent months and the potential for a sharp reversal if these positions are unwound. If the current base can hold and the dollar can break above the bear channel, I will be monitoring a break back above the 90.98 resistance for a move back up to 92.07 level Initially.

Key Data to Watch

The key reading to watch this week will be the US Q2 prelim GDP print on Thursday. The market is currently forecasting a reading of 6.4%, unchanged from last time around. However, given the increased optimism around the government’s vaccination push, as well as the broader reopening underway across most of the country, the risks are clearly tilted higher here and should data beat expectations, USD is likely to catch a firm bid.

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