Can The Dollar Break This Pivotal Level?

The dollar flew higher last week as a result of resilient economic news along with a higher PCE than expected. Now the DXY has reached a decision point in price action. This week's NFP will help determine the sentiment around the potential June rate hike. Here is what we are looking at:

EdgeFinder Analysis

USDCAD is one of the EdgeFinder's strongest buys at +6. With retail majority short and opposite COT, this pair looks to be gearing for another higher high. The USD is stronger in every category but seasonality and inflation. However, as we near the end of the month of May, the pair is expected to make some gains which could int turn take UC to a higher buy score.

The Smart Money Tracker also shows us some intuitive insight on both currencies. We saw an increase in long positions and decrease in shorts for the dollar. And on the flip side, CAD is now the most shorted pair on the SMT, replacing the yen.

The pivotal price action level mentioned previously pertains to this chart above on the DXY. Specifically on the 1D timeframe, we can draw a significant trend line that has lasted since the later part of 2022. Friday's candle closed right at this level, but it has yet to break above.

The way Friday's candle closed did show buying pressure, but the index was pretty much break even on the day. This candle also suggests some exhaustion in the rally and may spell a pullback. However, if price breaks above this level and closes, we could be in for another test at the 105.9s.

UJ is also standing tall at a +6 strong buy. This pair will be heavily dependent on the data at the end of this week. So far, the US has seen healthier economic data along with higher inflation (PCE). If NFP comes in higher than expected, it might be the turning point for the dollar further confirming a bullish bias.

A few weeks ago, less promising economic sentiment was crashing the dollar, and the expected end to interest rate hikes did more damage. However, the EF remains bias toward the bulls when looking at this pair.

Retail Spotlight

From what it looks like, the crowd is short the dollar. The past couple weeks have been more mixed, but now sentiment is more definitive. These long/short biases are very strong which may indicate the USD has more room to run higher.

Smart Money Spotlight

After taking a closer look at USDCAD on the SMT, the bullish bias has become clearer. While USD became more bullish, CAD did the opposite on a week-to-week change. Canada now has the most shorted currency on the scanner which took the yen's place for the first time in several weeks. Down at the bottom, the currency pair bias suggests that smart money could be ready to take this pair higher this week.

Fundamental Spotlight

This GDP growth rate on the USD is causing rising concern for stock market bulls. Although a rise in economic output suggests a healthier economy, it encourages the Fed to consider higher interest rates in the June meeting. The Fed's goal is to maintain inflation which rose slightly in last week's PCE. If the economy stays this resilient to higher rates, the Fed may be incentivized to go even higher. Thus, a higher dollar value.