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US DOLLAR Technical Analysis: The Dollar Bull Dilemma

US DOLLAR Technical Analysis: The Dollar Bull Dilemma

Tyler Yell, CMT, Currency Strategist

Interested In our Analyst’s Longer-Term Dollar Outlook? Be sure to sign up for our free dollar guide here.

Talking Points:

  • US Dollar Technical Strategy: ST Weakness Favored Toward 34-DMA, LT Bull View Intact
  • Lack of FX Volatility Has Presented ‘Reversion to Mean’ Environment
  • Seasonal Tendencies Favor USD Weakness for February

One can easily see that the trend on US Dollar is higher since October 15. However, one likely has a tougher time finding a good time to buy the US Dollar. This volatility within the uptrend has become the Dollar Dilemma of late whereas the uptrend continues as the US Dollar has strengthened over the last five weeks against the GBP, JPY, & AUD while treading water for now against the EUR.

US DOLLAR Technical Analysis: The Dollar Bull Dilemma

For now, the focus will remain on the red corrective price channel within the larger uptrend. Channels within channels can help you see the big picture while not losing sight of the daily or weekly theme in markets. The pivots help pave the way for the corrective channel and opens the view that we could soon be testing support once again before the next Dollar Bull Run takes hold. Aside from the JPY plummet on negative interest rates last week, the US Dollar has had a tough go since many markets (equities, energy, commodity FX) may have put in a bottom on January 20.

Key Levels: Watch the Recent Pivot to Hold

For now, the key support level on the US Dollar has turned to a confluence of support at 12,200. This level comprises of the 34-DMA, the recent price pivot before BoJ acted, as well as near bullish channel support. Short-term resistance will focus on the weekly pivot at the zone of 12,250-12,271. A break above that zone could open the floodgates toward the new highs, and the longer-term bull channel will resume.

A big development has also been the drop in US 2yr yields, which today retraced 61.8% of its 4Q rise. Given that the US Dollar has dropped more in such a drop in expectations for a rate hike and the potential for the European Central Bank to follow the BoJ in March, the Dollar dominance could continue throughout Q1 2016. However, if support fails to hold at 12,200, a deeper retracement could be afoot.

To see how FXCM traders are positioned, click here.


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