US Dollar Technical Forecast: Into the FOMC Blackout We Go

US Dollar, USD Talking Points:

• The US Dollar is working on an indecision formation for this week’s candle, currently showing as a doji.
• The USD rally was strong for three weeks until eventually running into a trendline last Thursday, as shared in last Friday’s article on the topic. That trendline held bulls at bay through Wednesday, with sellers taking a swing on Thursday to push DXY down to support at 103.45. The response to NFP was robust, with buyers coming back into the equation but, still, price remains below that bearish trendline as of this writing.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET, with the next session scheduled for Tuesday, June 13^th, just ahead of the FOMC rate decision. It’s free for all to register: Click here to register.

If you only looked at the weekly chart of the US Dollar, you might be mistaken to think that it was a slow or boring week. That was not the case. Stocks have continued to bubble higher as risk tolerance has continued to show in full bloom, and the US Dollar spent the bulk of the past week tangling with a key trendline.

That trendline had come into play in the prior week and I had written about it on Friday, May 26^th. That trendline continued to hold bulls at bay throughout the week, with tests taking place each day through Thursday. But Thursday morning saw sellers take a swing and they were able to push a strong downside move, eventually pushing DXY to the familiar level of 103.45 for a support test.

US Dollar - DXY Daily Price Chart (indicative only, not available on Forex.com platforms)

Chart prepared by James Stanley; data derived from Tradingview

That held the lows into the Friday NFP report, after which bulls returned to push prices back above the 104.00 handle. But, cumulatively on the weekly chart, we’re looking at indecision at this point, even if that doesn’t seem to tell the full story.

But also notable is the fact that prices have continued to hold a bearish trendline even after a very strong three-week show of gains. This puts bulls in the spotlight, as continued failure to breakthrough the trendline could begin to open the door to bearish potential, which I’ll discuss in a moment.

US Dollar - DXY Weekly Price Chart (indicative only, not available on Forex.com platforms)

Chart prepared by James Stanley; data derived from Tradingview

FOMC Blackout

The June rate decision from the FOMC is set to be announced on June 14^th, which means that as of this Saturday, the Federal Reserve is in a ‘blackout period.’ This is when members of the Fed are supposed to avoid communication with the press. This removes a major factor of importance as it’s Fed-speak and comments from Central Bankers that seem to really get markets excited, in one direction or the other.

There are other rate decisions on the economic calendar for next week, however, which could bring a point of vulnerability to the US Dollar. The RBA announces a rate decision on Monday night/Tuesday morning, with the Bank of Canada reporting on Wednesday.

But, for the US Dollar, the big question is whether buyers continue to drive the trend ahead of the June rate decision, where there are expectations that the bank may skip a rate hike, which could be perceived as a bearish factor for the Greenback. But this is a quarterly rate decision so there’s another factor to consider, as that skipping of a rate hike could be accompanied by a more hawkish dot plot matrix, highlighting plans for even more rate hikes from the Fed in the future. If that happens some of the drive from skipping a hike in June could be offset by the possibility of an even more hawkish FOMC in the second half of the year.

I talked about a scenario in the Tuesday webinar that must remain as a consideration. I was discussing the importance of investigating both sides of the matter, playing devil’s advocate, if you will. And the US Dollar still shows a potential descending triangle formation with a hold of trendline resistance. This is a bearish formation on the weekly chart, and it wouldn’t trigger until a breach of support around 100.87, but until that trendline is traded through the bearish potential from the formation exists. While there have been tests through that trendline on the daily chart, there haven’t yet been any closed-body breaks.

And with a major decision point of the FOMC on the radar, it should at least be considered as a possibility.

US Dollar - DXY Weekly Price Chart (indicative only, not available on Forex.com platforms)

Chart prepared by James Stanley; data derived from Tradingview

USD: The Bullish Side

I began looking at a key spot of support in the US Dollar in April. This was at the same spot that had come into play in February and it’s also the swing-high from April of 2020.

The hold of support at the same spot on the chart set the stage for a possible double bottom formation, which is often approached with the aim of bullish reversals. For the formation to trigger, bulls would need to push price beyond the neckline, or the high point between the two lows, and that would open the door for continuation scenarios. I’m tracking the neckline of the formation at 105.88 and that hasn’t been tested through yet; but the fact that support hasn’t been violated means that the formation hasn’t been invalidated yet.

This does seem to have some connection to the descending triangle discussed above, as a breach of the trendline would be a strong show from bulls that would invalidate the descending triangle. Meanwhile, if the trendline holds and price triggers the descending triangle, that would negate the double bottom.

This helps to draw some lines in the sand but, likely, markets are going to need some motivation to breach support at 100.87 or resistance at 105.88 to trigger either the double bottom or the descending triangle. The FOMC rate decision in the middle of June looks to be a logical place to look for that motivation, or signs of it, but after tomorrow we’re in the blackout period so we’ll just have to wait to see what the FOMC has to say.

USD Shorter-Term

Until we get to that FOMC rate decision there are a few notable levels in USD. The support bounce today showed from a big spot at 103.45 and this keeps the near-term trend in somewhat of a bullish state. But – can buyers break through 104.31, which had offered resistance for six consecutive trading days? If so, there’s a Fibonacci level around 105.00 and that scenario would come along with invalidation of the descending triangle.

Above that, the next major level is the 105.88 swing high from March, which also functions as the neckline for the double bottom formation. If bulls can force a breakthrough that, there could be continued upside potential which would further favor bulls.

For bears – it’s the 103 level that sticks out as important. This was swing low support from the prior week, as USD was building a morning star formation, and if sellers can take out that spot the door would open for a move down towards 102.50 followed by the Fibonacci level at 102.

US Dollar - DXY Daily Price Chart (indicative only, not available on Forex.com platforms)

--- written by James Stanley, Senior Strategist

To follow James on Twitter, @JStanleyFX