Will the US Dollar Index Break Out? Track the Euro!

From the Desk of Ian Culley @IanCulley

Equities like a deadstick dollar.

But stocks can’t always get what they want – or “like.” 

A swift 5 percent gain in the US Dollar Index $DXY was not on the S&P 500’s wish list.

Yet that’s what the dollar served up following its mid-July failed breakdown. 

Unsurprisingly, stocks have struggled since, peaking less than two weeks after the dollar posted its year-to-date low.

The DXY is now challenging a critical overhead supply level as dollar bulls have once again lowered their horns.

But will they finally hook 'em by the end of the week?

We’ll know if the DXY decisively closes above 105.

That’s the level:

Meanwhile, investors and traders appear reluctant to relinquish the euro (the largest component of the US Dollar Index at 57.6% of the weighting). 

Perhaps US dollar bulls are making contact at the index level. But they have yet to skewer the euro.

Here’s the EUR/USD failing to post an oversold reading of less than 30 after breaking down from a six-month channel:

The EUR/USD is finding support at its June pivot lows at approximately 1.0685. That's our line in the sand.

Watch for a breakdown below that level accompanied by a bearish momentum print below 30.

A decisive break below those former lows turns our tactical outlook toward 1.0350 for the euro. It will also coincide with an upside resolution in the dollar index. 

Dollar strength undoubtedly broadens. But the US Dollar Index isn't rallying as long as buyers prop up the euro.

The August CPI print will impact markets. And we now have critical levels to track as shenanigans ensue.

Stay tuned!

Thanks for reading.

Let me know what you think. I love hearing from you!

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