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US Dollar Technical Forecast: DXY, EUR/USD, GBP/USD, AUD/USD

US Dollar Technical Forecast: DXY, EUR/USD, GBP/USD, AUD/USD

Rich Dvorak, Analyst

US DOLLAR WEEKLY TECHNICAL OUTLOOK: DXY, EUR/USD, GBP/USD, AUD/USD

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The US Dollar traded on its front foot throughout most of January in a rebound attempt off 34-month lows. On balance, the broader DXY Index recorded a 0.71% monthly gain.US Dollar strength seemed to correspond with an increase in demand for safe-haven currencies as market sentiment deteriorated and volatility accelerated.

This relationship is highlighted by the generally strong positive correlation between the DXY Index and S&P 500-derived VIX Index. US Dollar bulls could find motivation to make another advance if trader risk appetite continues to soften and propels the VIX ‘fear-gauge’ higher. However, it is likely that US Dollar selling pressure would resume if there is a retracement lower in the VIX Index from current levels.

DXY & VIX INDEX OVERLAID PRICE CHART: DAILY TIME FRAME (24 AUG 2020 TO 29 JAN 2021)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

Looking at a daily chart of the US Dollar Index we can see that an inverse head-and-shoulder pattern appears to have formed. This brings bullish reversal potential into focus, which could be confirmed by a breakout above the 91.10-price level. Overcoming this obstacle might tee up a quick move to the 92.00-handle roughly underpinned by the 100-day simple moving average.

Although, the US Dollar is currently contending with technical resistance posed by its negatively sloped 50-day simple moving average. Not to mention, the upper Bollinger Band may continue keeping a lid on bouts of US Dollar strength. Odds of a sustained rebound could be undermined if the DXY Index fails to defend its bullish short-term trendline connecting the string of higher lows since 06 January.

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EUR/USD PRICE CHART: DAILY TIME FRAME (21 OCT 2020 TO 29 JAN 2021)

EURUSD Price Chart Euro to US Dollar Technical Forecast

The direction of the broader US Dollar stands to mirror EUR/USD price action. This is owing to the fact that EUR/USD is the largest component of DXY Index performance with a 57.6% weighting. As such, it is unsurprising that the US Dollar has staged a rebound with EUR/USD weakening nearly 200-pips from its recent swing high.

EUR/USD price action could continue facing downward pressure as the relative strength index points lower and emphasizes the short-term bearish trend. Confluent support highlighted by the 38.2% Fibonacci retracement on the chart above has proved formidable so far, however. This area might help keep EUR/USD afloat going forward.

Eclipsing the 22 January close, perhaps coinciding with a bullish MACD crossover, could invalidate the short-term downtrend and put a retest of year-to-date highs back on the table. On the other hand, taking out the January lows may correspond with a deeper pullback toward the psychologically-significant 1.2000-price level before the 1.1800-handle comes into consideration.

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GBP/USD PRICE CHART: DAILY TIME FRAME (05 OCT 2020 TO 29 JAN 2021)

GBPUSD Price Chart Pound to US Dollar Technical Forecast

GBP/USD price action trades roughly flat year-to-date after carving out a volatile 308-pip trading range throughout January. Bullish momentum behind the Pound-Dollar has sputtered out around the 1.3700-handle, but in light of continued higher lows, an ascending triangle pattern seems to have developed.

This formation highlights a period of consolidation and brings to focus potential for a continuation of the existing uptrend. The weekly implied high of 1.3862 might serve as a possible topside objective, which is derived from GBP/USD one-week implied volatility of 8.1%.

If US Dollar bulls can push GBP/USD price action below its 20-day simple moving average, however, a deeper pullback could come into play. Breaching this nearside support level may find the 11 January swing low and bottom Bollinger Band eyed as the next potential layer of defense.

GBP/USD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -5% -4% -4%
Weekly 23% -25% -7%
What does it mean for price action?
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AUD/USD PRICE CHART: DAILY TIME FRAME (23 OCT 2020 TO 29 JAN 2021)

AUDUSD Price Chart Australian Dollar to US Dollar Technical Forecast

AUD/USD price action has been gravitating lower since the start of the year. The sentiment-linked Australian Dollar could remain under pressure against its US Dollar peer if market volatility stays elevated. Forex options traders appear to have a bearish bias toward AUD/USD judging by its one-week risk reversal, which has turned increasingly negative and currently hovers at its lowest reading since 04 November.

That said, the 175-pip decline from its January high leaves AUD/USD flirting with a critical level of support near the 0.7625-mark. This area of buoyancy is highlighted by the 50-day simple moving average and 23.6% Fibonacci retracement on the chart above.

Failing to maintain this level might motivate AUD/USD bears to set their sights on the 100-day simple moving average around the 0.7400-handle. Invalidating the downtrend extended through the latest stretch of lower highs could recharge Aussie bulls and fuel a move back toward the 0.7800-level.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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