Dollar Index Review: On the back foot on EU-US trade talks and bearish RSI divergence

• The US-EU trade talks and Yuan recovery is hurting the US dollar.
• The large bearish divergence of the 14-day relative strength index (RSI) also favors the USD bears.

The US dollar exchange rate, as represented by the dollar index (DXY), fell to a two-week low of 94.09 in Asia as the US-European Union (EU) pledge to cut tariff barriers put a bid under risk assets.

Wall Street Journal (WSJ) reported yesterday that President Trump has secured concessions from the European Union to avoid a trade war. Meanwhile, a source told Dow Jones that EU's Juncker had offered to import more US soybeans and liquefied natural gas as well as reduce duties on some US goods.

Consequently, global trade tensions eased, helping risk currencies post gains against the USD. Further, the CNY recovery is also allowing China proxies, commodities push higher against the greenback.

As far as technicals are concerned, the USD looks set to further drop. For instance, the large bearish divergence of the daily RSI favors a downside break of the rising channel. If confirmed, the channel breakdown could yield a sell-off to 93.19 (June 14 low).

Daily chart

Spot Rate: 94.17

Daily High: 94.18

Daily Low: 94.09

Resistance

R1: 94.37 (50-day moving average)

R2: 94.86 (July 24 high)

R3: 95.65 (July 19 high)

Support

S1: 94.09 (rising channel support)

S2: 93.71 (July 9 low)

S3: 93.19 (June 14 low)