U.S. Dollar Index Close to a Make-or-Break Moment says Bank of America Technical Strategist 

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- USD at make-or-break support says Bank of America tech strategist.

- As fundamental team forecast steady and consistent losses for 2019.

- And as other technical analysts point to scope for gains in GBPUSD rate.

The Dollar index is approaching an inflection point that will mark a key make-or-break moment for the U.S. currency, according to technical analysts at Bank of America Merrill Lynch, who say the short-term trend remains downward.

Losses for the Dollar could easily snowball if a certain key level gives way over coming weeks, the bank says in a recent note to clients, but the current juncture could also eventually prove to have been an ideal point for U.S. Dollar bulls to have bought the greenback on the cheap. 

"The weekly chart of the BBDXY depicts a head and shoulders base. Going long USD because of the support in the 1170-1180 area is technically worthwhile to consider especially given the larger time frame base. However breaking down through the 1170 support line would mean the USD will fall much more," warns Paul Ciana, a technical analyst at Bank of America. 

Ciana refers to the Bloomberg Dollar index, which is different to many other indices of the currency but moves in an almost identical fashion. It failed to break the 1,215 peak for the 2018 year on December 11 for a third consective time, which was one of a number of sell signals given off by it that month.

Above: Bank of America technical analysis of Bloomberg Dollar Spot Index at daily intervals.

The Bloomberg Dollar index was quoted -0.05% lower at 1,183 Monday while the Dollar Spot index, which is a more frequently quoted measure of the greenback against rival currencies, was -0.01% lower at 95.67. 

Ciana said back in December the Dollar index would likely decline into the New Year, taking it down to current levels, but that a pull-back toward the current level should be treated as a buying opportunity.

His comment on Monday suggests the present levels of the Bloomberg index mark a make-or-break moment that will set the trajectory of the currency for the coming months. This view is at odds with that of Bank of America's fundamental analysts, who forecast steady and consistent losses for the Dollar in 2019. 

"As the cyclical tailwinds for USD recede, structural headwinds are likely to intensify. A weaker USD is now consensus and we think selective shorts versus JPY, AUD and GBP make sense. As the Fed establishes its put, our analysts are becoming increasingly bullish on risk assets," says Kamal Sharma, a fundamental strategist at Bank of America. "JPY has "catch up" potential. So do GBP & AUD, but risk premiums need to dissipate." 

Sharma and the funamental team at Bank of America are forecasting the Dollar will weaken against all of its major rivals during 2019, as the Federal Reserve (Fed) ends its interest rate hiking cycle and other central banks edge toward the point at which they will be able to begin raising rates.

He forecasts the Pound-to-Dollar rate will rise to 1.44 before year-end, which implies an increase of around 12% in 2019. A turn in the Pound-to-Dollar rate trend is also what some technical analysts at other firms are forecasting too. 

"GBP/USD eroded the 9 month downtrend last week and has in the process completed a reversal pattern," says Karen Jones, head of technical analysis at Commerzbank. "We regard the slide to 1.2444 charted recently as the end of the down move. We look for gains to the 200 day moving average at 1.3121."

About: Commerzbank technical analysis. Pound-to-Dollar rate shown at daily intervals. 

The Dollar index rose by nearly 5% in 2018, forcing all other currencies to cede ground to the greenback, after reversing what was once a 4% year-to-date loss wracked up mostly during the first quarter.

A superior performance from the U.S. economy was behind the move, because it enabled the Federal Reserve to go on raising its interest rate steadily as other central banks stood pat. 

But Fed Chairman Jerome Powell said last week he and his colleagues can afford to be "patient" before raising U.S. rates again, when addressing an audience at the Economic Club of Washington D.C.

Those comments came less than a month after the Fed used its dot-plot and December's interest rate statement to tell markets they will be raising rates at a slower pace and in a much more cautious manner this year. 

The Fed hiked rates four times in 2018, taking the Federal Funds rate range up to between 2.25% and 2.5%. Markets had previously thought it'd hike three times this year, only after December's statement they're now betting it doesn't raise rates at all.

That landmark policy shift has given other central banks and their respective currencies the opportunity to get out from under the thumb of the Dollar although the exact performance of exchange rates in 2019 will depend as much on economic outcomes in the rest of the world as it will what happens in the U.S.

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