Dollar gains still possible, but signs of trouble emerge

The dollar has been steadily rising since mid-September, but recent developments suggest the risk of a pullback is increasing. Technical indicators, such as the dollar index and a 100-week moving average, initially appeared favorable for dollar bulls. However, the index recently encountered a bearish engulfing pattern on Friday, signaling potential downward pressure on the currency.

This pattern, characterized by a down day with a larger price range than the preceding up day, often foreshadows a slide in prices. Additionally, a bearish trend candlestick pattern emerged on Monday, indicating a further loss of momentum and market indecision. If the index falls below the 100-week moving average near 100.7, traders may view the area as crucial in determining whether a slide towards the September 9 low of 98.5980 becomes likely.

Conversely, if the recent bearish engulfing pattern is merely a temporary setback, attention will shift to the range between 101.63 and 101.80, where June and July highs were recorded. Technical analysts typically consider previous highs significant, as they can either slow or accelerate a rally. A breach of these peaks could propel the dollar towards 102.87, midway between the January 2025-to-January 2026 decline, and potentially even 104.59.