The US dollar had a bounce in January from a 34-month low. The DXY index recorded an increase of 0.71% monthly. The strength of the US Dollar seems to correspond to an increase in demand for safe-haven currencies as market sentiment worsens and volatility accelerates.
This relationship is highlighted by the generally positive correlation between the DXY Index and the S&P 500 based on the VIX Index. The bulls of the US Dollar may find the impetus to take another step forward if the trader's risk appetite continues to decline and pushes the VIX's 'fear gauge' higher. However, selling pressure in USD is likely to continue if there is a lower pullback in the VIX Index compared to current levels.
Looking at the daily chart of the US Dollar Index, we can see that an inverse head and shoulders pattern appears to have formed. This makes the potential for a bullish reversal into the spotlight, which can be confirmed by a break above the 91.10 price level. Overcoming this obstacle can get you quickly moving to the 92.00 handle that is almost reinforced by the 100-day simple moving average.
Though, the US Dollar is currently facing technical resistance due to its negative sloping 50-day moving average. Not to mention, the upper Bollinger Band may continue to conceal the rally of the US Dollar. The sustained rebound could be destroyed if the DXY fails to defend the short-term uptrend line connecting the chain of lower levels since Jan. 6.
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