US Dollar Technical Forecast: USD Bulls Poised for Key Fed Decision

US Dollar Index Technical Forecast: USD Weekly Trade Levels (DXY)

• US Dollar rebounds off trend support into December open- monthly opening-range in view
• USD bulls face major event risk next week with Fed rate decision and PCE on tap
• DXY resistance 107.49, 107.93-108.06 (key), 108.98– Support 105.78, 104.88-105.05 (key), ~103.96

The US Dollar is poised to mark a second weekly advance after rebounding off trend support into the monthly open. All eyes now fall on the FOMC rate decision next week with DXY poised for a breakout of the monthly range. These are the updated targets and invalidation levels that matter on the DXY weekly technical chart.

US Dollar Price Chart – USD Weekly (DXY)

Technical Outlook: In last month’s US Dollar Technical Forecast we noted that DXY had broken the yearly opening-range highs and that, “From a trading standpoint, losses should be limited to the median-line IF price is heading higher on this stretch with a breach / close above 107.35 needed to fuel the next leg of the advance.” The index ripped higher the following week to briefly register an intraday high at 108.07 before exhausting into the November close. The pullback rebounded off the median-line last week with DXY rallying nearly 1% since the start of December.

The monthly opening-range is being challenged here and the focus is on a breakout of this range in the days ahead. Initial resistance is eyed with the yearly high-week close at 107.49 and is backed again by key resistance at 107.93-108.06- a region 100% extension of the 2023 advance and the July high-week close (HWC). Note that this level converges on the 75% parallel over he next few weeks and a breach / close above is needed to fuel the next major leg of the advance toward the 61.8% retracement of the 2022 decline at 108.98.

Initial weekly support rests with the November weekly-reversal close at 105.78 and is backed by a more significant technical consideration at 104.88-105.05- a region defined by the July HWC, the February swing high, and the 38.2% retracement of the yearly range. A break / close below this threshold would suggest a more significant high was registered last month / threaten a larger correction towards subsequent objectives at the 52-week moving average, currently near ~103.96.

Bottom line: The US Dollar has rebounded off the median-line into the start of the month and while the broader outlook remains constructive, the threat for a larger correction is present while below the high-week close. The immediate focus is on a breakout of the December opening-range. From a trading standpoint, losses should be limited to the median-line IF price is heading higher on this stretch with a close above 108.06 needed to mark uptrend resumption.   

Keep in mind the FOMC interest rate decision is on tap next week with markets widely expecting another 25-basis point cut. We also get the Fed’s preferred inflationary gauge into the close of the week with US Personal Consumption Expenditures slated for Friday. Stay nimble into the releases and watch the weekly closes here for guidance. Review my latest US Dollar Short-term Outlook for closer look at the near-term DXY technical trade levels.

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--- Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex