US Dollar Short-term Outlook: USD Rally Set to Snap

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

• US Dollar Index set to snap five-day rally within a five-week advance
• USD now testing major technical confluence at yearly downtrend- bulls vulnerable
• DXY Resistance 103.47/49 (key), 104.22, 104.53- Support 102.95/99, 102.65, 101.85/98

The US Dollar Index surged more than 4% off the yearly lows with a five-week rally taking DXY into a major technical confluence at yearly downtrend resistance. The battle-lines are drawn with the bulls vulnerable while below this key threshold. These are the updated targets and invalidation levels that matter on the USD short-term technical charts.

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US Dollar Index Price Chart – DXY Daily

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

Technical Outlook: In last month’s US Dollar Short-term Outlook, we noted that the USD advance, “may be vulnerable here on the back of a six-day rally into confluent resistance… losses should be limited to 100.82 IF price is heading higher on this stretch.” The greenback promptly reversed off slope resistance with a two-day decline of more than 1% briefly registering an intraday low at 100.55 before rebounding sharply higher.

A rally of more than 3% now takes DXY into a major resistance confluence here at 103.47/49- a region defined by the 61.8% Fibonacci retracement of the yearly range and the objective 2023 yearly open. Note that the March trendline (blue) also converges on this zone over the next few days and further highlights its technical significance. Looking for possible topside exhaustion / price inflection into this zone- watch the daily closes.

US Dollar Index Price Chart – DXY 240min

Chart Prepared b/y Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Notes: A closer look at USD price action shows DXY trading within the confines of an ascending channel formation extending off the July lows. Initial support rests with the 2016 high-close / 2020 high at 102.95/99 and is backed by a basic 23.6% retracement of the July advance at 102.65- losses should be limited to this threshold IF price is heading higher on this stretch. Broader bullish invalidation now raised to the objective monthly open / 38.2% retracement at 101.85/98.

A topside breach / close above 103.49 would signify a breakout of the yearly downtrend and threaten a larger trend reversal towards initial resistance objectives at the May high-day close (104.22) and the 78.6% retracement at 104.53- look for a larger reaction there IF reached.

Bottom line: The US Dollar rally may be vulnerable here on the back of a five-day rally into confluent resistance at the yearly downtrend. From a trading standpoint, a good zone to reduce portions of long-exposure / raise protective stops – losses should be limited to July channel support IF price is heading higher on this stretch with a close above the July highs needed to mark resumption of the medium-term uptrend. Review my latest US Dollar Weekly Technical Forecast for a longer-term look at the DXY trade levels. 

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

Follow Michael on Twitter @MBForex