The CFTC Positioning Report for the week ended July 7 shows among other things that there has been a reduction in the net USD longs, sending these levels to two-week lows.
This is a manifestation of the continuing weakness of the US Dollar and USD-tracking assets such as the USD Index (DXY). News of further stimulus from the US government made the rounds last week, and a renewed bout of dollar printing could weaken the greenback further.
Analysts at Goldman Sachs believe that this is just the beginning of sustained weakness for the USD. Goldman Sachs analysts estimate a drop of more than 20% from recent peaks for the US Dollar, according to a recent report from the bank.
The severe decline in the USD Index began about four months ago. At today’s level of 96.31, the DXY is trading 6.5% lower from its March 20 high of 102.8.
The USD Index is 0.3% lower on the day and is challenging the 96.46 support line. The breakdown of that support requires confirmation from two daily candle closing penetrations below that support line. If this is achieved, then the pathway towards the 96.07 support (March 12 and June 11 lows) becomes clearer. Below this area, 95.71 and 95.19 constitute further downside targets, with the March 9 low at 94.62 only becoming relevant if the decline continues below 95.19.
On the flip side, failure to break down 96.46 allows for a short term bounce on this support, which may extend towards 96.94 or 97.16. Further upside targets lie at 98.29 and 98.60, with the 61.8% Fibonacci retracement at 98.93 also constituting a relevant upside target if the advance gains momentum.
