US Dollar Price Outlook: USD Might Weaken if Covid Fears Abate

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US DOLLAR OUTLOOK: DELTA VARIANT CONCERNS FADE, RISKS USD WEAKNESS

US Dollar price action strengthened against most FX peers during Tuesday’s trading session and left the broader DXY Index 0.15% higher on balance. USD/JPY advanced as EUR/USD and GBP/USD price action extended lower while the US Dollar weakened versus the Loonie. USD/CAD dropped over 100-pips from its intraday high, though at only a 9.1% weighting of the entire DXY Index, this did little to offset US Dollar gains.

The DXY Index now trades around the 92.95-price level after briefly piercing the 93.00-handle earlier tin the session. That said, and as discussed in my prior note, US Dollar bulls could seek to press onward with technical resistance around the 92.80-price level now in the rearview mirror. I remain a bit dubious of recent US Dollar strength, however.

This is considering the plausible scenario where Fed officials opt to stay cautiously dovish and delay tapering due to perceived risks from the delta variant of covid-19. Not to mention, with vaccines doing their job of keeping covid-related hospitalizations and deaths quite low relative to the number of new infections, risk trends could remain generally favorable.

DXY INDEX – US DOLLAR PRICE CHART: WEEKLY TIME FRAME (NOVEMBER 2019 TO JULY 2021)

DXY Price Chart US Dollar Index Forecast

Chart by @RichDvorakFX created using TradingView

That might put downward pressure on the DXY Index as the safe-haven appeal of the US Dollar is diminished. Nevertheless, the technical backdrop paints a brighter picture for US Dollar outlook. The DXY Index seems to have broken out above the neckline of its inverse head and shoulder bottoming pattern. It may be prudent to wait for confirmation, though, with year-to-date highs a mere stone’s throw away.

This brings to focus potential for a double top chart pattern with the Bollinger Band also likely capping advances. US Dollar bears fading recent strength could see technical support around the 91.75-price level come into play. On the other hand, taking out technical resistance posed by the 93.45-price level could see the DXY Index rally to the 38.2% Fibonacci retracement before the 96.00-handle is considered.

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— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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