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Statistical, technical & behavioral analysis of US Dollar

The current uncertainties in the geopolitical area could play an important role in the further development of the US dollar.

The main topic of last week was the war between Russia and Ukraine. Any conflicts in the world usually strengthen the position of the US Dollar as the world’s reserve currency. However, another key indicator will be the speed of rate hikes and overall interest rates differentials. The current price of the US Dollar index is 96.62 (February 25, 2022). Therefore, we will now look at statistical and technical analyzes.

STATISTICAL ANALYSIS

Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 0.37% and -0.38%, respectively. The estimated daily return in both directions based on their probability of occurrence is 0.19% and -0.19%. FridayΒ΄s return is -0.51%, which is slightly above the first standard deviation. Our scoring is currently positive (1) for the month-on-month change and 1 for price indexation. This means that we are in a slightly positive phase of the cycle. Both scorings range from -3 up to 3. The development of the estimated cycles based on our analytical systems is shown in the following chart.

US Dollar index daily price indexation

Source: WALFIR

Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. As we can see in the chart below, all US Dollar index MAs currently support bullish sentiment. In the event of a decline, the monthly MA may be the price support.

US Dollar index daily price development

Source: WALFIR

Since the beginning of 2022, we have witnessed more upward trends that did not exceed 4 consecutive days. The total maximum in the measured period (last 3 years) is 8 days. The declining trends in recent weeks have not exceeded more than 3 days. The total maximum for the last 3 years is 6 days. We could use the average long-term ATR (Average True Range) obtained from daily data (0.49%) to estimate Stop Loss orders for our positions. The current value is 1.18%, which is more than double the average. Approximately 90% confidence interval (return between -0.80% and 0.80%) is shown in the histogram below by a red rectangle.

US Dollar index daily return distribution

Source: WALFIR

We could use the last decile of low to high returns (1.20% ) to estimate Profit Targets, as shown in the chart below.

US Dollar index low to high distribution

Source: WALFIR

TECHNICAL ANALYSIS

The basic technical analysis points to a sideways trend since December 2021. In the middle of the channel, there is also a strong psychological level at 96.00 along with the 50.00% Fibonacci retracement level and the short-term moving average. Another Fibonacci level of 38.20% was recently tested. In addition, we can clearly see the bearish divergence between the market price and the RSI. The US dollar index is still above both moving averages. In the event of a decline, the demand zone (green rectangle) could be a strong support for the bulls.

US Dollar index basic technical analysis

Source: TradingView

BEHAVIORAL OUTLOOK

We use COT data (Commitments of Traders) for this type of analysis. This helps us better identify potentially extreme areas and levels where traders are no longer willing to buy or sell. This could indicate a possible turning point or, in our case, a change of the trend or phase of the cycle. Our Spread is currently in extremely negative territory. The moving average of our spread is rising, which could still motivate the bulls.

US Dollar index COT analysis

Source: WALFIR

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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