Take a look at the following charts.
1. This is the USD trade weighted index on a weekly chart.
2. This is the same chart on a monthly time frame.
3. This is the $DXY, the standard USD index. (https://www.tradingview.com/chart/DXY/S1oU78fW-USDx-teetering-on-the-edge/)
Both indices are indicating bearishness. Since The Euro is gaining strength (and since it is weighted heaviest in both) I’d argue that is applying heavy downside pressure and will continue to do so.
We have seen poor trade data from China just three days ago. I’ll take Investopedia’s explanation of why this matters hugely for the USD as they word it much better than I could.
China is primarily a manufacturing hub and an export-driven economy. Chinese exporters receive US dollars for their goods sold to the US, but they need Renminbi (RMB or Yuan) to pay their workers and store money locally. They sell the dollars they receive through exports to get RMB, which increases the USD supply and raises demand for RMB. China’s central bank (People’s Bank of China — PBOC) carried out active interventions to prevent this imbalance between the US dollar and Yuan in local markets. It buys the available excess US dollars from the exporters and gives them the required Yuan. PBOC can print Yuan as needed. Effectively, this intervention by the PBOC creates a scarcity of US dollars which keeps the USD rates higher. China hence accumulates USD as forex reserves.
With a huge amount of dollars in reserve, the Chinese buy up US treasury bills (US debt) as it is a relatively safe medium to hold this value in. Now, I hold a bearish view on China. They have an overheating housing market, alongside a pretty big credit bubble. Since there is a huge amount of US – China interdependence, I think you can tell what would happen if China failed…
In addition, today we had the US 10 Year bond auction where we saw the lowest yield on US 10s in a month. Since we had a huge amount of foreign central banks buying up these US 10s, I would say that we are pricing out a rate hike. This is obviously USD negative and gives further weight to USD bearishness.
We have other elements, but it’s late and you’ve probably stopped reading now.