NDR:  Breakdown for U.S. dollar?

Since its April 21 low, the U.S. Dollar Index has fluctuated and now hovers just above that level, raising questions about a breakdown or successful test. Bearish signals dominate, with all three of our technical composites flashing sell since March (chart above). Seasonality and the presidential cycle also favor weakness, while the index remains far from undervalued by Purchasing Power Parity. Economic divergence, particularly weaker U.S. industrial output, could widen yield gaps and weigh on the dollar.

However, U.S. yield spreads have been rising, and extreme bearish sentiment may signal a near-term rebound. A failed “revenge tax” provision targeting foreign investors could also lift the dollar. Additionally, if interest rates continue to climb, gold may weaken due to its inverse relationship with the dollar. While most indicators are still dollar-bearish, overly bullish sentiment in gold suggests upside risks for the dollar remain.

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