USD market update: US dollar outperforms again

US dollar technical setup

The DXY Dollar Index rose 0.51% on Monday after a solid 0.57% rally on Friday.

This made the 1.08% rise over the past two trading days the most over 48 hours since early March and as recently highlighted, the USD’s performance from a technical standpoint does not seem like it was out of the blue.

Last week, the dollar fell to the critical 100.82 – 101.29 support zone that was reinforced back in February.

At the same time, positive RSI divergence was showing that downside momentum was fading. This can at times precede a turn higher. Over the past two days, the currency was unable to clear this zone and instead, reversed higher.

Could this be the starting point of an extended bullish move?

At this stage, it seems too early to tell. A Bullish Engulfing emerged at the close of last week looking at the daily chart below. Since then, there has been cautious upside follow-through. But, the near-term falling trendline from March remains in play and is holding as resistance.

Confirming a breakout above that could offer an increasingly upside technical bias.

That would place the focus on the 100-day Simple Moving Average (SMA). This line held as key resistance in early March, maintaining the broader downside bias. It could very well do so again if prices continue higher in the coming days.

DXY daily chart – watch the trendline

Watch the 100-Day SMA

Focusing on USD/JPY (大口）, the US dollar has made upside progress beyond the 100-day SMA.

That has exposed the March high, which is just below 138.17. Not only that but also prices have closed at the highest in over a month. Meanwhile, a rising trendline from the beginning of this year is slowly guiding the exchange rate higher.

In the event of a turn lower, this line could maintain the near-term upside bias.

USD/JPY daily chart

USD/JPY Sentiment Analysis (IGCS) - Bearish

We can look at IG Client Sentiment (IGCS) to see how retail traders have been positioning themselves in USD/JPY (大口）.

At the time of publishing, about 38% of them were net-long the exchange rate. IGCS typically functions as a contrarian indicator.

As such, since most people are net-short, this hints prices may continue rising. But upside exposure increased by 7.79% and 11.02% compared to yesterday and last week, respectively. As such, recent changes in exposure warn that prices may turn lower instead.

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.