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US Dollar to Rallies to Resistance at Trend Extremes - Breakout Potential into 4Q

US Dollar to Rallies to Resistance at Trend Extremes - Breakout Potential into 4Q

Michael Boutros, Strategist

US Dollar Technical Outlook- Breakout Potential into 4Q

  • DXY rallies more than 4.4% heading into Q4 open- risk for correction
  • US Dollar Index contracting just below key resistance at the yearly highs
  • Constructive above 91– breach / close above 93.88 needed to mark resumption

DXYWeekly Price Chart

US Dollar to Rallies to Resistance at Trend Extremes - Breakout Potential into 4Q

Into the start of Q3 our DXY outlook noted that the US Dollar recovery was approaching, “the yearly high-week close at 93.01- look for a reaction there IF reached with a break / close above needed to keep the long-bias viable towards the 2016 low-week close at 93.88 and the 38.2% retracement / March low at 94.47/65.” The index registered a fresh yearly high at 93.72 in August before reversing. The pullback turned just ahead of confluent support at 91.74 (a region defined by the August 2020 low and the 52-week moving average) with the subsequent recovery testing the yearly high-week close at 93.45. The battle-lines are drawn.

This consolidation just above the 91.74 support zone could last for a few more weeks but the focus is on a breakout with a breach / weekly close above 93.76/88 needed to fuel the next leg higher in price towards the 38.2% retracement of the 2020 decline / March 2020 low at 94.47/65. Weekly support rests with the lower parallel (currently ~92.30s) backed by 91.74. Key support and broader bullish invalidation rests with the 61.8% retracement of the May advance / 2017 swing low at 91.01/13. Weakness beyond this threshold would shift the focus back towards the objective yearly open at 89.93.

Bottom line: look to fade weakness while within this formation with a breach above 93.88 needed to keep the long-bias viable into the close of the year.

Written by Michael Boutros, Technical Strategist

Follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.