US Dollar Index (DXY) Talking Points:
- The ONE Thing:The US Dollar has pulled back since posting an evening star reversal pattern on the charts in late June. However, the pullback may prove merely corrective as the price of DXY remains above multiple forms of chart support. Traders should watch for the next move, and whether or not a subsequent break of resistance at 94.81 surfaces.
- The US Dollar extended losses on Friday after a beat of NFP expectations helped to push the yield curve flatter still.
- Technical Outlook on the US Dollar: The US Dollar Index (DXY) may be nearing a wave four terminus that is set for another run to new highs. Traders should watch the daily Ichimoku cloud as key support, which aligns with prior price action support between 93.79 and 92.9.
Convergence of Chart Support
Pick your currency against the US Dollar, and likely, it has shown strength over the last few trading sessions. The greatest strength has come from the Swedish Krone & the Norwegian Krone, which is positively-correlated to Oil by 3.06 & 2.21% respectively. Even the meek Japanese Yen is higher over the last week by 0.3% against the US Dollar.
When looking across the board, the US Dollar has fallen toward Fibonacci support of the yearly range of a multitude of currencies. The Fibonacci support level in focus is the 23.6% mark, which is the square root of the commonly used 38.2% retracement level.
Despite the recent weakness of the US Dollar or strength of the counterparts, a positive move from the 23.6% retracement, should it surface would favor broader US Dollar strength.
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Technically Speaking – US Dollar Pulls Back Into Support
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
Looking at the chart above, the two levels that should stand out are 93.79 and 92.90 with the Daily Ichimoku cloud and the spot price resting in between each. These levels are acting as price support, and the candlestick data visualization show that trend continuation was aggressive at these levels.
Two other tools added to the chart worth mentioning are MACD with modified settings of 5,34,5 (Fibonacci numbers) that help show extremes of momentums within a move and therefore better visualize extremes of momentum, but not necessarily price.
The Moving Average Convergence Divergence has been known as the king of oscillators, and the king at present looks to be showing bullish divergence with a lower low in momentum and a higher low in price. A break higher is typically seen as a slingshot in the direction of the trend.
The other tool added to the chart is the Andrew’s Pitchfork, which is manually drawn. I like to grab key points of momentum and see if the pitchfork can act as a guide for future price action, which can help me better see trend reversals or extremes that are helpful in identifying exit or entry opportunities.
The key insight I’m gathering here is that after breaking above the 100% upper parallel line and into the 200% upper parallel line, the pullback that we’re currently witnessing may be setting up for a “cheap price” to get in before a move to higher Bullish targets. An invalidation of the set up would be on a break below 92.90, the mid-June low.
The next broad upside target sits at 95.87, the 50% retracement of the 2017-2018 range. Should the price hold above 93.79, the target getting hit may simply be a matter of time.
Recommended Reading: 4 Effective Trading Indicators Every Trader Should Know
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More Resources For Your Trading
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.
Forex Trading Tools
DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.
Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.
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