The U.S. dollar turned positive against a number of foreign currencies after opening the new week lower. There wasn’t any news out to support it. But after the recent strength in U.S. data, it is likely that some bearish speculators are probably taking their feet off the gas a little. The rebound looks promising but let's see if this time it will be anything more meaningful. There’s not a lot on the agenda in terms of economic data today and this week, but the new Fed Chair Jerome Powell will be testifying on the Monetary Policy Report before the House Financial Services Committee, in Washington DC, tomorrow. His comments could potentially be market moving. But the trouble is that everyone is expecting the Fed to be hawkish anyway. So, the greater risk would be if we see some surprisingly dovish remarks from Powell instead.
However, regardless of the fundamentals, the technical outlook is starting to look somewhat bright for the greenback. The Dollar Index has now held above the long-term 88.50 support level for 5 consecutive weeks now. This level was resistance back in the years 2008, 2009, 2010 and 2014, before its breakout in late 2014. On the daily time frame, there have been some tentative bullish price actions around this 88.50 support such as the formation of a bullish engulfing candle and a potential false break reversal pattern, not to mention the positive divergence on the RSI momentum indicator.
While the dollar hasn’t moved away from this level in a meaningful way to suggest that the buyers are back in full control yet, the DXY’s refusal to go further lower means the selling pressure has abated at least. So, this could be the start of a comeback for the dollar but we do need to see evidence that the buyers are back before we can become more confident in our bullish view here. A break above a recent high such as the 90.50 level would indeed be a positive development. However, if in the coming days the DXY breaks below 88.50 then this would invalidate any bullish signs we have seen so far in the month.