The US Dollar Index (USDX) in the European session is trading above the 21 SMA and is breaking the symmetrical triangle formed in 1-hour charts. The index is showing signs of a technical rebound after several days of decline.
The US dollar index has been weighed down by fears of rising inflation, pessimistic expectations from the FED and falling Treasury bond yields.
On the other hand, according to the University of Michigan survey, one-year inflation expectations have risen to 4.6%; this was a good indicator in the past. For inflation to consolidate, there needs to be a sustained change in expectations. If prices go up one month but not the next, that is not inflation.
If inflation continues to grow steadily, it could assure the market to expect a rate hike from the Federal Reserve (Fed) sooner than later. The longer the Fed lets inflation rise, the longer the market should wait for a higher CPI that could reach as high as 4%.
At the technical level, we note that the USDX is in an overbought zone, so in the next few hours it is expected to make a technical correction to the 200 EMA, located at the psychological level of 90.00.
This level of 90.00 is the key because a consolidation above this level could give the US Dollar more bullish strength until the next resistance of 90.62 and 91.40 in the short term.
The technical reading of the eagle indicator is showing a bullish signal for the next few hours, after its moving line has bounced around the 5-point zone, and moving away from this level, with a bullish bias.
Our recommendation is to buy above the SMA of 21, around 89.60, with targets at 90.00. Besides, the USDX has a correlation of 98% with respect to EUR / USD, you can also sell this pair with targets at 1.2207 and you can sell some currencies that have crosses against the USD.
Support and Resistance Levels for May 26 – 27, 2021
Resistance (3) 90,15
Resistance (2) 89,96
Resistance (1) 89,81
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Support (1) 89,57
Support (2) 89,47
Support (3) 89,31
