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

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

Daniel Moss, Analyst

US Dollar Technical Forecast: Bearish

  • Long-term cycle analysis implies extended losses are on the cards for USD.
  • RSI trend break hints at further upside for AUD/USD.
  • EUR/USD breach of Descending Channel could intensify near-term buying pressure.
  • GBP/USD rates eyeing 2018 highs after slicing through key psychological resistance.

As mentioned in previous report, the haven-associated US Dollar may continue to lose ground against its major counterparts, as long-term price analysis suggests a cyclical downturn is in the offing. Key levels to watch for AUD/USD, EUR/USD and GBP/USD.

US Dollar Index (DXY) Monthly Chart – Cyclical Downturn Afoot

DXY Monthly Chart

DXY monthly chart created using Tradingview

The chart above highlights the cyclical pattern seen in the US Dollar Index over the past 34 years, with the DXY largely adhering to what appears to be a 16-year rotation. The index set significant bottoms in 1992 and 2008.

After bottoming out, price then seems to rebound aggressively early in the cycle, soaring 24.1% and 26.8% in 1993 and 2009 respectively, before pulling back to key support at the 88.6% Fibonacci. A 6-year period of sustained USD strength follows this counter-trend pullback, with price climbing 50.1% from the 1995 low and 42.8% from the 2011 low, to set key highs in 2001 and 2017.

Bearish RSI divergence in late 2002 seemed to signal the end of the US Dollar’s bull run and triggered a shift in overall market sentiment, as price collapsed through uptrend support and ell 41.6% to eventually bottom in March 2008.

Recent price action and the development of the RSI is strikingly similar to that seen in the first quarter of 2003 and could be indicative of further downside for the DXY, as price slices through the September 2020 low (91.75) and hurtles towards the 2018 low (88.25).

An extended downside push towards the 100% Fibonacci expansion (83.50) looks likely if the 2018 low is breached, with cycle analysis suggesting price could fall a further 23% from current levels before bottoming out in mid-2024.

AUD/USD Daily Chart – RSI Trend Break Indicative of Swelling Buying Pressure

AUD/USD Daily Chart

AUD/USD daily chart created using Tradingview

The commodity-sensitive Australian Dollar has stormed higher against the US Dollar in February, climbing over 3% to push to its highest levels since early-2018. These gains look set to continue as price surges through key psychological resistance at 0.7800, and the RSI snaps the downtrend extending from the December 2020 extremes.

Remaining constructively positioned above the January high (0.7817) probably paves the way for the exchange rate to climb towards the 50% Fibonacci (0.7965). Clearing that brings the 2018 high (0.8136) into the crosshairs.

Alternatively, falling back below 0.7800 and the Pitchfork median line could neutralize buying pressure and trigger a pullback towards the 21-EMA (0.7726).

EUR/USD Daily Chart – Breach of Descending Channel Hints at Further Gains

EUR/USD Daily Chart

EUR/USD daily chart created using Tradingview

The Euro has also had a constructive month against the Greenback, rebounding higher after plunging 3.3% from the yearly high, set on January 6 (1.2349), to its lowest levels since November 30. Further gains appear in the offing, as the exchange rate climbs back above all six moving averages and breaches Descending Channel resistance.

Ultimately, a daily close above the monthly high (1.2169) is required to signal the resumption of the primary uptrend extending from the March 2020 nadir and carve a path for buyers to challenge the yearly high (1.2349).

However, failing to hurdle psychological resistance at 1.2200 could see price grind back towards range support at 1.2055 – 1.2075.

GBP/USD Daily Chart – Eyeing 2018 Highs

GBP/USD Chart

GBP/USD daily chart created using Tradingview

The GBP/USD exchange rate is hurtling towards the 2018 highs, after breaking above the psychologically imposing 1.4000. With the RSI surging into overbought territory for the first time since August 2020, and price tracking firmly above all six moving averages, the path of least resistance seems higher.

A daily close above 1.4000 probably validates the break of the 2007 downtrend and opens the door for GBP/USD to continue climbing towards the 78.6% Fibonacci (1.4305). However, Ascending Channel resistance may trigger a short term pullback to former resistance-turned-support at the 61.8% Fibonacci (1.3956).

Nevertheless, remaining constructively positioned above 1.3900 opens the door for a more extensive upside push in the coming weeks.

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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

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