Yesterday, the buy signals generated by the daily indicators encouraged currency bulls to push the index higher, but the lower line of the grey declining trend channel stopped them once again, triggering a pullback. Thanks to this drop, the greenback moved to the previously-broken blue line, which looks like a verification of the earlier breakout.
If this is the case, and the index rebounds from here (which is quite likely as the buy signals remain in the cards), we’ll likely see not only a re-test of the lower grey line, but also a climb to the 38.2% Fibonacci retracement, which intersects the upper line of the green consolidation marked on the weekly chart. If the bulls manage to break above this first important resistance area, they will confirm that the worst is behind them and higher values of the greenback are just around the corner.
How High Could the U.S. Dollar Go?
What could happen if the situation develop in line with this assumption? In our opinion, the USD Index will extend gains and test at least the 61.8% Fibonacci retracement and the upper border of the grey declining trend channel. Nevertheless, taking into account the buy signals generated by the medium-term indicators, it seems t us that the greenback can move even higher and test the long-term red declining resistance line seen on the daily chart (currently around 94).
Crude Oil – Greenback Link
What does it mean for black gold? If the recent negative correlation between crude oil and the U.S. currency remains in the cards, we should see a sizable decline in light crude in the coming weeks (or even months) – even if we see a short-lived improvement first.