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US Dollar Technical Outlook: 'Death Cross' Takes Shape in July

US Dollar Talking Points

The technical outlook warns of a further depreciation in the US Dollar as a ‘death cross’ formation takes shape in July, but the DXY index may face range bound conditions over the coming days amid the failed attempt to test the June low (95.75).

Technical Forecast for US Dollar: Neutral

The US Dollar has given back the advance following the COVID-19 outbreak, with DXY now marginally higher from the start of the year as the Federal Reserve deploys a slew of unconventional tools to combat the economic shock from the pandemic.

In turn, DXY appears to have established a downward trend from the March high (102.99), with the trendline tracking a similar slope to the 50-Day SMA (98.06).

DXY Index Daily Chart

DXY Index Chart

Source: Trading View

The negative slopes in the simple moving averages offer a bearish outlook for the US Dollar index as the 50-Day SMA (98.06) crosses below the 200-Day SMA (98.27) in July, and the ‘death cross’ formation undermines the recent rebound in DXY as the recovery from the June low (95.72) stalls ahead of the June high (98.32).

As result, DXY may continue to track last month’s range as the decline from the start of July fails trigger an extreme reading in the Relative Strength Index (RSI) like the behavior seen in June.

With that said, DXY may continue to hold above the Fibonacci overlap around 95.90 (23.6% expansion) to 96.00 (50% retracement) amid the a failed attempt to test the June low (95.75), with lack of momentum to close below the 96.40 (78.6% retracement) region bringing the 97.10 (38.2% expansion) area on the radar.

Need a break/close above 97.10 to open up the overlap around 97.60 (23.6% expansion) to 98.20 (50% expansion), which largely lines up with trendline resistance.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong