USD index forms a double bottom

Rising delta cases globally and Fed’s tightening led to a change in investor sentiment. A slump in UK retail sales adds to concerns of a slowing global economic recovery as China continues its regulatory clampdown, which resulted in markets turning risk-off.

Because of these factors, European stock markets opened broadly lower Friday, and the dollar rallied, creating a bullish double bottom pattern.

The Index Yesterday’s close above the critical level of 93.47 confirms the double bottom continued breakout from the pattern’s neckline, which will likely fuel a rally to 95.40 on the index. If the bullish sentiment prevails, a breakout could run to as high as 97.40 as the classic objective of the pattern.

UK retail sales fell 2.5% in July, a sharp decline from June’s growth of 0.5%, while German factory prices rose 1.9% in July, up 10.4% year-on-year likely to catch the attention of the European Central Bank.

Moreover, the data from the Union have been somewhat weak this week. According to the German ZEW survey, Economic Sentiment fell to 40.4 in August in the country and 42.7 for the Union, much worse than expected. CPI in July rose by 3.8% YoY, whereas wholesale prices grew a mere 1.1% MoM. EU industrial production contracted unexpectedly by 0.3% month-over-month in June. On the positive side, an increase of 12.4 billion euros was recorded in the Union’s Trade Balance on a seasonally adjusted basis.

Should the dollar break out above the neckline as shown in the chart, it may drive commodity prices like oil, gold and copper even lower. Both oil and copper have fallen sharply over the past few weeks, with both slumping by more than 15%.

Although oil prices climbed out of three-month lows on Friday, the week will still likely to end with a loss of more than 5%.