US Dollar Index Forecast October 7, 2014, Technical Analysis

The US Dollar Index fell during the course of the day on Monday, searching for the 86 handle. That level of course offered a bit of support, and as a result it appears that we are going to bounce around in this general vicinity. We most certainly still have an upward bias when it comes to this contract, but also recognize that the EUR/USD pair is going to bounce from the obvious 1.25 support level. Because of that, this market will probably be a bit sought for the next session or two, but ultimately we believe that this will lead to a buying opportunity on a supportive candle at a lower level.

We have absolutely no interest in selling this market at all, especially considering that the Federal Reserve is by far one of the most hawkish central banks in the world right now. Using the word hawkish is probably a little bit of a stretch, but they are certainly that in comparison to other places such as Japan and Europe. With that being the case, we expect that the tapering off of quantitative easing will continue, and ultimately fade out to the entire program. That of course is very positive for the US dollar overall, and since the European Union is facing deflation, we believe that the ECB will more than likely go a fairly dovish direction going forward. Because of this, we believe that the EUR/USD pair will go much lower, and that will almost guarantee that this market will go higher.

On top of that, the USD/JPY pair is looking very strong these days, and that of course is the second largest contributor to this marketplace, so this point in time we see absolutely no sense in trying to fight the obvious uptrend. Are we overbought at this point in time? More than likely. Are we willing to sell in order to take advantage of that? Absolutely not. We believe that pullbacks will continue to offer value when it comes to the US dollar in general, and most certainly in this market.