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Head and Shoulders Pattern Poses Challenges for Bulls
Central Bank
Forex
Summary:
After breaking through 107.00 the previous week, the U.S. Dollar Index (USDX) opened this Monday below that level, which may indicate that bearish sentiment around this threshold still holds some influence, potentially posing challenges for bulls in the short term.
Sell
TradingUSDX
EXP
106.170
Entry Price
103.360
TP
108.400
SL
106.360 +0.120 +0.11%
0
Point
Flat
103.360
TP
CLOSING
106.170
Entry Price
108.400
SL
Fundamentals
The USDX has retreated after reaching a two-year high of 108.11 in the previous week. The underlying reason for this decline is President Trump's announcement of a 25% tariff on "all products" imported from Canada and Mexico, which was one of his first executive orders following the election. China is also a target in Trump's trade agenda, with an additional 10% tariff imposed on top of the existing tariffs.
The USDX briefly surpassed the adjustment threshold, achieving a 61.8% increase since Trump's election and a total rise of 76.4% from the low at the end of September. It is currently in a retracement phase, seemingly testing the upper limit of a two-year trading range before undergoing a corrective adjustment. From a technical perspective, the current state of the U.S. dollar resembles a tactical pullback prior to a new round of peak testing.
On the other hand, the Federal Reserve's shift towards a less hawkish stance supports the notion of the U.S. dollar's current decline. The Fed is revising its interest rate cut expectations for next year, with the market following suit. Last week, the prevailing scenario suggested that rates would remain unchanged in December. However, by the weekend, the likelihood of this outcome had dropped to 30%.
During a speech yesterday, New York Fed President John Williams stated that monetary policy needs to "gradually shift towards a more neutral policy environment over time." However, he did not provide explicit guidance on the timing of interest rate cuts, including whether adjustments in December would be appropriate.
Williams emphasized the inherent uncertainty in economic forecasts and noted that "the policy path will depend on the data."
Despite this uncertainty, Williams maintained a relatively optimistic outlook on the U.S. economy, describing it as being in "good shape" with a "strong" labor market.
He projected that the economic growth rate would reach 2.5% or higher this year, with the unemployment rate expected to stabilize between 4% and 4.25% in the coming months. Additionally, he anticipates that the inflation rate will reach 2.25% by the end of the year, with no significant upward pressure on the labor market.
Technical Analysis
This week, the USDX has continued to retreat from its two-year high of 108.11, currently trading around 106.25. Analyzing the movement of the USDX, it opened lower this week and has formed two consecutive doji candlesticks in the 1D timeframe, which typically indicates a potential weakening of bullish momentum for the U.S. dollar in the near term.
Although it suggests that the U.S. dollar remains in an overall upward trend in the 4H timeframe and may continue to rise in the short term, it has spent most of the time below 107.00 after testing the two-year high last week. Meanwhile, the formation of a head and shoulders pattern indicates that the upward momentum for the U.S. dollar may have diminished, suggesting a market demand for a pullback to the demand zone.
Trading Recommendations
Trading Direction: Sell
Entry Price: 106.54
Target Price: 103.36
Stop Loss: 108.40
Valid until: December 18, 2024 23:55:00
Support: 106.09, 105.60, 105.32, 105.00
Resistance: 106.50, 106.81, 107.10, 107.46
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