US Dollar Short-term Outlook: USD Recovery Vulnerable

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

• US Dollar Index three-day rally off confluent slope support- testing initial resistance
• USD break of multi-month uptrend keeps bulls vulnerable while below monthly-open
• DXY Resistance 105.63/71, 106.17/25, 106.67 (key)- Support 105.00/06, 104.38, 103.46/55

The US Dollar Index is attempting to mark a three-day winning streak after rebounding off confluent support early in the week. The rally takes the USD into initial resistance and while the longer-term outlook for the Dollar is still constructive, the threat of a deeper correction within the broader uptrend remains while below the November-open. These are the updated targets and invalidation levels that matter on the DXY short-term technical charts.

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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 US Dollar Short-term Outlook, we noted that DXY had marked an outside day reversal off support with the October, “opening-range now defined by 105.51-107.17- look to the breakout of guidance here.” The range held into the close of the month with the Dollar turning sharply from resistance into the November open. A decline of more than 2.1% broke the lows last week before rebounding off confluent slope support near the 105-handle. The immediate focus is on this three-day recovery with the risk still weighted to the downside while below the objective monthly open.

US Dollar Index Price Chart – USD 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 a descending pitchfork with a rebound off the lower parallel on Monday now testing resistance at the median-line. Looking for possible inflection here today.

A topside breach / close above this slope threatens a larger recovery towards key near-term resistance at 106.17/25- a region defined by the October-open, the October low-day close and the 61.8% Fibonacci retracement of the November range. Bearish invalidation is set to the objective monthly open at 106.67.

Support rests with the weekly-open / big-figure at 105.00/06 – a break / close below this threshold would be needed to mark near-term downtrend resumption towards the lower parallel / 38.2% retracement of the yearly range at 104.38 (look for a larger reaction there IF reached).

Bottom line: The US Dollar has broken below a multi-month uptrend (as well as a month-long range) with the decline rebounding off the median-line of a longer-term upslope. From a trading standpoint, the focus is on a possible topside exhaustion in this recovery – IF price breaches the median-line, rallies should be limited to the monthly open for the November downtrend to remain viable with a close sub-105 needed to fuel the next leg lower. Ultimately, a larger setback here may offer more favorable opportunities closer to rend support. 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