U.S dollar index long-term technical analysis
Economic recovery is the main topic to discuss this year as the world still battling the coronavirus pandemic. U.S vaccination rates show positive progress and the new cases of coronavirus continue to decline. However, a new variant of the virus will continue under close focus.
Last month, the Fed mentioned that the inflation increase in the economy might not be transitory. The central bank admits that the inflation increase is out of expectation but needs more data to determine how to act. This month could become a vital month for the U.S dollar index direction.
If the Fed starts unrolling loose policies and proceeds to taper then we will see a major boost in the U.S dollar index level.
U.S dollar index formed a major bullish candlestick close last month. The close is inside the orange box area which means another test is happening right now. If the index could continue moving upward and print higher close above the orange box area then traders will expect a long-term bullish reversal.
On the other hand, if the index gets another rejection with strong bearish momentum then we might see a continuation to test the monthly SMA 200.
The orange box area is the key level to watch this month as the index will consolidate inside it. A close above the area will let the index continue further upward to test weekly SMA 200. On the other hand, a close below the area will suggest another attempt for a lower low.
On the daily chart, the U.S dollar index smoothly moving upward and printing higher high also higher low. There is bearish pressure today but as long as there is no lower low printed then it is better to avoid shorting. Traders will take note that the trend might continue bullish in the short-term chart and sideways on the higher time frame as long as the index stays inside the orange box area.
Meanwhile, traders could use the moment to enter short-term positions when the index hit either top or bottom of the orange box area.
Trade plan (For U.S dollar pair)
The long-term outlook of the index will wait for the monthly closing level. The index is at a crucial level and waiting for a reaction. Traders will focus on the shorter time frame to trade both directions inside the yellow box area. As long as no breakout from the range, it is safe to assume the index will undergo a sideways period.