US Dollar Technical Forecast: USD Bulls Charge Ahead of Fed

US Dollar Index Technical Forecast: USD Weekly Trade Levels (DXY)

• US Dollar rebounds off confluent support - rallies 1.6% off March low
• USD poised to mark four-day rally ahead of FOMC - Bulls eye yearly high
• DXY resistance 104.27, 104.63/77, 106.10– Support 102.75/99, 101.33, 98.97-99.66

The US Dollar is poised to mark a four-day rally with DXY attempting to build on a rebound off- technical support last week. The focus now shifts to the FOMC rate decision tomorrow with the USD bulls eyeing resistance near the yearly highs. These are the updated targets and invalidation levels that matter on the DXY weekly technical chart heading into the Fed.

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US Dollar Price Chart – USD Weekly (DXY)

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

Technical Outlook: In last month’s US Dollar Technical Forecast we noted that USD had, “rallied six of the past eight-weeks with the advance failing at technical resistance for a second week- risk for some exhaustion here…losses should be limited by the 103-handle IF price is still heading higher on this stretch. Ultimately, a larger pullback here may offer more favorable entries with a close above 104.77 needed to fuel the next leg higher.”

The index turned lower the following week with USD plunging nearly 2.5% off the highs into the March open. The decline drove deep into the 103-handle with recent price action now highlighting key support at 102.75/99 -a region defined by the 100% extension of the February decline, the January 2023 low-week close (LWC) and the 2016 high-close (HC). The Dollar has rallied more than 1.6% off this mark and the focus is on this recovery heading into tomorrow’s highly anticipated FOMC interest rate decision.

Look for initial resistance at the yearly high-week close (not shown- at 104.27) with key resistance steady at the March 2023 HWC / 61.8% Fibonacci retracement at 104.63/77- a breach / close above this threshold would be needed to mark uptrend resumption. Subsequent resistance objectives are eyed at the 2023 high-week close (HWC) at 106.10 and the 50% retracement / 2023 high at 107.18/34.

A break / weekly close below this key support zone would threaten a deeper breakdown in the greenback with subsequent support objectives eyed at the December LWC at 101.33 and the 98.97-99.66 confluence zone. Both areas of interest of possible downside exhaustion IF reached.

Bottom line: The US Dollar has rebounded off confluent uptrend support and from a technical standpoint, keeps the outlook constructive while above 102.75. From a trading standpoint, look to reduce long-exposure / raise protective stops on stretch towards 104.77- losses should be limited to channel support IF price is heading higher here with a close above the yearly opening-range highs needed to fuel the next leg.

Note that we get the release of the Fed’s updated economic projections as the pertain to growth, inflation, and employment – a meaningful shift in the interest rate dot plot could fuel a sizable move in the greenback- watch the weekly close here for guidance. I’ll publish an updated US Dollar Short-term Outlook once we get further clarity on the near-term DXY technical trade levels.

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

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