FxWirePro: Further 2-2.5 percent decline in Dollar index likely in coming weeks

The Dollar index has been weakening over the past weeks or so, as it declined from 96.7 area in mid-August to 94.6 area as of today and based on the latest calculations, we at FxWirePro expect a further 2-2.5 percent declined in the USD index. Since the index is largely composed of the single currency, euro, the EUR/USD exchange rate would have a much higher impact on USD, while the broad-based USD can gain against many of the emerging market currencies such as the Turkish Lira.

Technically speaking, a larger decline makes sense as the last two weeks selloff in the dollar index was preceded by an inverted hammer candle in the weekly chart, same time as the traditional 14-day RSI was hitting the overbought level.

While the dollar is forecasted to decline, the readers must take note that the medium-term trend is still dollar positive along with many of the fundamentals such as the dollar squeeze by the U.S. Treasury, Federal Reserve, and president Trump’s attack on the U.S. trade deficit.

Our model suggests that the dollar index is currently trapped between a bull/bear fight over longer-term direction, hence, the broad consolidation would continue.