US Dollar Technical Outlook: USD Flies to Fresh Yearly Highs

• USD breaks to fresh yearly highs ahead of FOMC- Look for a reaction at 94.20/27
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The USD has rallied more than 6% off the yearly lows with the advance now testing an area of confluent resistance which could limit further gains near-term. A near-term structure has been in play throughout the April-May advance and keeps the focus higher . . . for now.

USD Daily Price Chart (DXY)

Technical Outlook: In my latest Weekly Technical Perspective on the US Dollar, we noted that the DXY was, “testing confluence resistance this week at 93.89-94.20 where the 2016 low-week reversal close and the 38.2% retracement of the 2017 decline converge on the median-line.” The index is trading in this region today and a daily close above is needed to keep the immediate USD uptrend viable.

Daily support rests at 92.52 with bullish invalidation set to the yearly open at 92.28. A topside breach of this threshold targets subsequent resistance objectives at 95.15 and the 50% retracement at 96.04.

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USD 240min Price Chart (DXY)

Notes: A closer look at USD price action sees the DXY trading within the confines of a well-defined ascending channel formation with the lower parallel highlighting near-term support at 93.42. Note that the momentum profile will be marking bearish divergence into these highs IF this candle close at current levels. That said, we’ll be looking for a reaction on a stretch into 94.20/27 for possible exhaustion.

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Bottom line: While the broader outlook remains weighted to the topside in the USD, the index is testing Big resistance here just ahead of the release of the FOMC minutes later today. IF the Dollar is going to get a pullback, this would be a good spot- a break below 93.42 targets a set-back towards 92.52 & 92.28- both areas of interest for exhaustion / recovery in price IF reached.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com