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US Dollar Technical Analysis Favors Further Gains On Fed Support

US Dollar Technical Analysis Favors Further Gains On Fed Support

Tyler Yell, CMT, Currency Strategist


What's on this page

US Dollar Index (DXY) Talking Points:

  • The ONE Thing: An upbeat Jerome Powell gave DXY the fuel needed to break higher and work toward the highest close since late June. Traders were anticipating potentially dovish language from Powell on his concerns about a yield curve inversion, global growth on trade or potentially the lately significant term “symmetrical targeting” that the Fed recently introduced. However, he stuck to the data dependent view, and with good data, the markets see the USD as a fair buy.
  • The US Yield curve when looked at through the lens of the US 2yr & US 10yr looks set to continue flattening as the FOMC will look to gradually hike with the backdrop of a US Fiscal boost.
  • Technical Outlook on the US Dollar: The bears in the US Dollar Index (DXY) have few legs to stand on while bullish arguments continue to compile. Whether looking through the lens of Ichimoku, Elliott Wave, Andrew’s Pitchfork, or MACD (there are more) the prudent approach seems to favor further US Dollar Index gains.

Powell Signals the Fed Won’t Stop Hiking

The Federal Reserve’s plan for gradual hikes is not news to the market. However, the Fed’s plan to stick to their view of economic growth picking up in light of Trade Wars heating up with inflation now at 2% shows that the Fed’s confidence is justified, even if in doubt.

Power spoke at the Humphrey Hawkins Testimony, and while doing so, he showed acknowledgment for the “rising chorus of concern,” arising from Trade War fears. However, he sidestepped discussion on Yield Curve inversion, or growing fear within the Fed of global growth weakness, which was enough to help the market see the Fed as set to continue to remove accommodation from the market.

Unlock our Q3 forecast to learn what will drive trends for the US Dollar through 2018!

Technically Speaking – US Dollar Pushes Off Support, May Run Higher

Please add a description for the image.

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Looking at the chart above, traders can see that the US Dollar Index has continued to post higher lows despite not having a higher high since mid-June. Such a development would align with an Elliott Wave consolidation above the Ichimoku cloud.

Consolidations favor broad trend continuation, which is important since the consolidation never broke below the key support zones previously called out here at 93.79 and 92.90. Because these levels acted as price support alongside the recent key bullish day candlestick formation, the bias remains that trend continuation is in play.

Other tools of analysis here are the MACD and the Andrew’s Pitchfork. The MACD with settings of 5,34, & 5 shows a broad bullish backdrop that has come into zero-line support at a time that price appears to be reaching Bullishly from the rising lower parallel line in Andrew’s Pitchfork.

These developments come together to argue that price may be ready to extend higher in an aggressive manner after a time correction that was mainly sideways may have played out. Traders should be on the lookout for the next broad upside target that sits at 95.87, the 50% retracement of the 2017-2018 range.

The Fibonacci target in view is the 61.8% extension of the February to June move drawn from the low in early July at 97.82. Should the price hold above 93.33 (the July opening range low,) the bullish bias will hold.

New to FX trading? No worries, we created this guide just for you.


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.

---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.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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