The dollar index has dropped to its lowest level in almost three weeks as bears extend a slide that began in late July. Traders now wait on Friday's US inflation report, which will shape the Federal Reserve's policy decision next week.
The dollar index fell for a second straight week and touched its lowest point in almost three weeks on Wednesday. The slide traces back to late July, when a US-backed intervention to support the weakening yen and bond buybacks sent the index down from 101.48 to 99.45, where bears first found temporary support.
Bears regain control after failed bounce
A limited recovery attempt stalled out, and the setback proved decisive. The bounce was capped by the 38.2% Fibonacci retracement of the 101.48-to-99.45 decline, reinforced by the 100-day moving average and a bull-trap pattern, which handed fresh momentum back to sellers. That reversal produced an almost full retracement of the 99.45-to-99.82 recovery leg.
Daily studies have since turned fully bearish. Multiple moving-average crosses, a repeated close below the 200-day moving average, and 14-day momentum back in negative territory after a brief probe above its centerline now favor a test of the 99.45 pivot, the August higher base. A break there could spark a further slide.
All eyes on Friday's CPI print
The dollar's next move hinges on Friday's US August inflation report, which feeds directly into the Fed's policy meeting the following week. A hotter-than-expected CPI reading would likely support the case for a rate hike and could help the dollar, though more work on the upside is still needed to neutralize bears.
Fed's Waller said just a day before the US NFP report that he would support keeping rates unchanged at the upcoming FOMC meeting, but that a hot CPI print would make him consider a rate hike. Meanwhile, the dollar's own spike after the strong NFP report on Friday faded soon after, as market focus shifted from payrolls to the coming inflation data.
Key levels to watch
On the charts, the broken 200-day moving average at 98.96 now marks initial resistance, followed by the 10-day moving average at 99.14, guarding the upper breakpoint at 99.60. A firm break of the 99.45 pivot would complete a bearish failure swing and open targets at 97.82, the weekly cloud base, and the 97.40 zone, the April-May higher base.
Resistance stands at 98.96, 99.14, 99.45, and 100.00. Support sits at 98.44, 97.82, 97.40, and 96.81.
Sources: ActionForex, Investinglive RSS Breaking News Feed
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