FX.co ★ Trading plan for US dollar index for May 06, 2022

Technical outlook:

The US dollar index defied resistance once again and printed a swing high at 103.81 on Thursday. The index has managed to erase all that was lost post FOMC on Wednesday when prices dropped through 102.20. The registered high is just three pips from the previous swing top at 103.78, which could be seen at a test or potential double top.

The US dollar index has also produced a strong bearish divergence on its daily RSI as marked on the chart here. A high probability remains for a quick trend reversal and a break below 102.20 will confirm the same. Keep in mind that the euro failed to print below 1.0470, which is also a potential divergence scenario.

If the above structure holds well and unfolds accordingly, the US dollar index might be preparing for a sharp reversal as bears are looking poised to break below 103.20 interim support to be back in control. Aggressive traders might be willing to initiate fresh short positions from here against 104.40-50.

Trading plan:

Potential drop through 103.20, 99.65 and 97.60 against 104.50

Good luck!