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US Dollar Technical Forecast: USD Plummets to Fibonacci Support Zone

US Dollar Technical Forecast: USD Plummets to Fibonacci Support Zone

James Stanley, Senior Strategist

US Dollar Technical Forecast: Bearish

It was another week of losses for the US Dollar, continuing the sell-off from the prior week after the currency had topped out on the previous Friday. Cumulatively, the two-week sell-off has nearly wiped out the entirety of the gains from the mid-August rally: Price action in the USD is heading towards the same spot of support that helped to hold the lows in late-July into early-August. This runs between confluent Fibonacci levels plotted at 91.82 and 91.93, with the latter of those prices being the 38.2% retracement of the 2011-2017 major move.

US Dollar Eight-Hour Price Chart

USD Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Taking a further step back on the chart and we can see where the US Dollar is holding to the scenario looked at in the Q3 technical forecast on the USD. In that forecast I was largely looking for mean reversion, and while we did get a quick trip up to a fresh high, that move was fleeting and prices soon start to break back-down.

And at this point, it seems as though there may be scope for more weakness: At Jackson Hole in August, Jerome Powell said the US economy had not quite met the mark for ‘significant forward progress’ in terms of employment. And then August Non-farm Payrolls came out abysmally bad, and this doesn’t exactly provide for strong context going into the September FOMC rate decision. So it’s difficult to imagine how the Fed could get more hawkish here, especially as Covid case numbers continue to rise. The seemingly bearish fundamental backdrop meshes with the current bearish trend, and this allows for a bearish forecast for the USD going into next week.

US Dollar Technical Forecast: Bearish

US Dollar Monthly Price Chart

USD Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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