US Dollar Short-term Outlook: USD Battle Lines Drawn at Major Support

US Dollar Index Technical Outlook: USD Short-term Trade Levels

• US Dollar reversal off uptrend resistance now testing uptrend support
• USD bears vulnerable near-term- weekly opening-range breakout imminent
• Resistance 105, 105.58/63 (key), 106.37 - Support 104.15/33, 103.49, 102.75/99

The US Dollar Index is testing technical support after plunging more than 2.2% off the yearly highs. The weekly opening-range is set just above multi-month uptrend support and the focus is on a breakout in the days ahead with the bears vulnerable above 104. Battles lines drawn on the DXY short-term technical charts into the close of the month.

Review my latest Weekly Strategy Webinar for an in-depth breakdown of this US Dollar technical setup and more. Join live on Monday’s at 8:30am EST.

US Dollar Index Price Chart – USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Technical Outlook: In last month’s USD Short-term Outlook, we noted that DXY was in correction after exhausting into resistance and highlighted the, “Risk for some pullback here with a turn from uptrend resistance now threatening a test of uptrend support.” A final test of the yearly high-day close (HDC) at 106.37 into the May open failed with the index plunging more than 2.25% into downtrend support.

The decline settled into key support last week at 104.15/36- a region defined by the December high-close (HC), the 38.2% Fibonacci retracement of the December rally, the measured head-and-shoulders objective of the April breakdown, and the 200-day moving average. Note uptrend slope support also converges on this threshold over the next few weeks and the immediate focus is possible price inflection off this zone with the bears vulnerable while above.

US Dollar Index Price Chart – USD 240min  

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Notes: A closer look at USD price action shows DXY trading within the confines of an embedded descending pitchfork formation extending off the April highs. A rebound off confluent support at the lower parallel last week is now testing the median-line – looking for a break of the weekly opening-range for guidance here.

Topside resistance is eyed at the 105-handle and is backed 105.58/63 – a region defined by the 61.8% retracement of the recent decline, the January 2023 high, and the March high-day close (HDC). A breach / close above this threshold would be needed to suggest a more significant low was registered last week and shift the focus back towards the yearly HDC at 106.37.

A break / close below this key support zone would suggest a larger trend reversal is underway with such a scenario exposing the 2023 yearly open at 103.49. Key longer-term support remains unchanged at 102.75/99.

Bottom line: The US Dollar is responding to confluent uptrend support with the weekly opening-range taking shape just above- looking for evidence of an exhaustion low here. From at trading standpoint, a good region to reduce short-exposure / lower protective stops – losses should be limited to 104.15 IF the broader uptrend is to remain viable. Ultimately, a close above 105.63 would be needed to mark resumption of the broader uptrend. Review my latest US Dollar Weekly Forecast for a look at the longer-term DXY technical trade levels. 

Keep in mind we get the release of key inflation data (Core PCE) next week into the close of the month- stay nimble into the cross and watch the weekly close here for guidance.

Key USD Economic Data Releases

Economic Calendar - latest economic developments and upcoming event risk.

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Written by Michael Boutros, Sr Technical Strategist with FOREX.com

Follow Michael on X @MBForex