Trendline Support Holding for the USD Index

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Trendline Support Holding for the USD Index

The USD Index (USDX) pushed to a new high on the year this week at 86.21. It has since consolidated. As we get into the 10/1 US session, it is showing a failure to form a price top.

USD Index (USDX) 1H Chart 10/1
USD Index 10/1 1H Chart

(click to enlarge)

The 1H chart shows a bearish attempt that found support around 87.80, which was a previous resistance pivot. Seeing support here, we can say that USD-bulls are still in charge.

Also note that a rising trendline from last week’s low of 84.36 as well as the 50-hour simple moving average (SMA) are holding as support factors. Furthermore, the 1H RSI held above 40, even above 50, showing maintenance of the bullish momentum.

When we take a look at the weekly chart, we can see that price has been is running away to the upside, even as the RSI shows overbought condition. The next key resistance will be the 2010-high at 88.70.

USD Index (USDX) Weekly Chart
usdcad weekly chart 10/1

(click to enlarge)

If the USD Index falls below 85.75 however, we might be looking at some topping at least for the short-term.

On Friday, if the NFP for September comes in above 200K after a 142K reading in August, the USD should remain bullish due to speculation of a rate hike at or before mid-2015. However, if the print is below 200K, there could be some consolidation, but there should not be a bearish outlook.

US Data (10/1): Jobs and Manufacturing

ADP Non-Farm Employment Change (Sept): 213K
Forecast: 207K
Previous: 202K (revised from 204K)
ADP employment sept. 2014

(click to enlarge; source: forexfactory.com)

The ADP data point is really just a precursor for the more highly anticipated NFP data due on Friday. The NFP print was 142K for August, and today’s ADP jobs data suggested that the labor market saw a rebound in September after the dip in August.

ISM Manufacturing PMI (Sept): 56.6
Forecast: 58.6
Previous: 59.0
ism manufacturing pmi sept 2014

(click to enlarge; source: forexfactory.com)

Manufacturing growth slowed down in September after a steady climb throughout the year. The 56.6 reading is still indicating expansion of manufacturing activity, and underlying demand is still strong according to the September survey. The market is not likely to be concerned about manufacturing, and if the NFP jobs data on Friday does rebound back above 200K, traders will still likely price in a rate hike by the FOMC in mid-2015 or earlier.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.