US Dollar Short-term Outlook: USD Bulls Rest Ahead of PCE, Fed

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

• US Dollar on defensive after turning from uptrend resistance at fresh yearly high
• USD bulls vulnerable near-term, broader outlook remains constructive- PCE, FOMC on tap
• Resistance 106.11, 106.71, 107.07/17 (key) - Support 105.61/63, 105.00/14 (key), 104.48

The US Dollar Index is taking a reprieve from a two-week rally to fresh yearly highs with DXY off more than 0.85%. A pullback from uptrend resistance is threatening a deeper pullback here and while the broader outlook remains constructive, the risk remains for a larger correction within the multi-month advance. These are the updated targets and invalidation levels that matter on the DXY short-term technical charts heading into May trade.

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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 a, “V-shaped recovery off key technical support has rallied more than 2% off the lows with a breakout of the monthly opening-range highs last week keeping the focus weighted to the topside into the close of the month….From a trading standpoint, losses should be limited to the 200-DMA IF price is heading higher on this stretch with a close above 105 needed to mark resumption of the broader uptrend.”

The Index rebounded just ahead of the 200-DMA into the April open with the subsequent rally registering an intraday high at 106.51 last week before exhausting into uptrend resistance. Risk for some pullback here with a turn from uptrend resistance now threatening a test of uptrend support.

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 continuing to trade within the confines of an ascending pitchfork extending off the December low with an embedded channel guiding the March advance. The decline is testing initial support here at 105.61/63- a region defined by the 100% extension of the recent pullback and the 2023 January high / March high-day close (HDC).

A break / close below this threshold would keep the focus on a possible test of key support at 1.618% extension / 23.6% Fibonacci retracement of the December rally at 105.00/14- and area of interest for possible downside exhaustion / price inflection IF reached. Ultimately, a break below the March trendline (red) would be needed to suggest a more significant high was registered last week and threaten a larger setback towards the objective March-open at 104.48 and the December HDC at 104.01.

Weekly-open resistance is eyed at 106.11 and is backed by the 100% extension of the December advance at 106.71- look for a stronger reaction there IF reached with a breach / close above 107.07/17 ultimately needed to fuel the next leg higher in price.

Bottom line: The US Dollar is correcting off uptrend resistance – while the immediate threat may be lower, the broader outlook remains constructive while within this embedded channel. From at trading standpoint, losses should be limited to the 105-handle IF price is heading higher on this stretch with a close above 107.17 ultimately needed to mark resumption of the broader December uptrend.

Keep in mind the economic calendar is stacked into the monthly crossover starting with key inflation data (PCE) on Friday and the FOMC rate decision / NFPs next week. Stay nimble into the May open and watch the weekly closes here for guidance. Review my latest US Dollar Weekly Forecast for a longer-term look at the DXY technical trade levels. 

Key US 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