Dollar bulls are facing one of the scariest indicators in the world of technical analysis with the Federal Reserve embracing a more gradual approach to raising interest rates.
A death cross, seen as a harbinger of further losses by traders who look to price patterns on charts for guidance, was formed when the 100-day moving average of the Bloomberg Dollar Spot Index exceeded its 55-day moving average for the first time in almost a year. The dollar index has fallen 1.1 percent this week, extending last week’s 1.4 percent decline.
“What a turnaround such as the death cross means is that the dollar bull market is getting a serious test,” Ashraf Laidi, chief executive officer of Intermarket Strategy Group, said by phone from London. “It may open the door for further declines.”
The pattern may be a sell signal for traders using technical charts, particularly hedge funds, he said.
The U.S. currency may come under further pressure from a potential rise in German bund yields and narrowing interest-rate expectations between the U.K. and U.S., he said.
“This really supports the notion that we could see further downward momentum in the U.S. dollar and the bar for further declines in the U.S. dollar may be lower,” Laidi said.