USD Technical Outlook:
- DXY pulling back to confluence of support created since August
- Short-term outlook hinges on whether it can hold or not
The US Dollar Index (DXY) has been gradually pulling back, and thus far smacks of just a pullback in what has been a decent-looking uptrend off the low in September. It will be important that the index holds here, as a crossroad of support comes into play to start the week.
There is a lower parallel to a channel rising up off last month’s low that is in confluence with horizontal support running over from minor swing-highs dating back to the beginning of August. The crossroad of support is a good test of the uptrend we’ve recently seen.
A hold and turn higher is seen as continuing the trend up to at the least, and potentially beyond, the March coronavirus low/March top trend-line that helped induce this most recent bout of weakness. But a break of support and the outlook will quickly shift towards a test of the 2011 trend-line, where support is much more meaningful.
For now, the outlook is still tentatively bullish with the gradual decline into support, but it needs to hold right here. This makes the current spot, from where I sit, a potentially attractive risk/reward spot for would-be longs. For would-be shorts, this same line-in-the-sand can be used to determine whether the recent pullback will morph into an outright decline.
Both sides have levels not too far away to think about depending on things play out at support this week. A rally will quickly have price up against the March low/trend-line, while further selling will be quickly met by the 2011 trend-line. Whether we see a rally or decline, we will want to pay close attention to how price action plays out at those respective thresholds.
US Dollar Index (DXY) Daily Chart (sitting at confluent support)
U.S. Dollar Currency Index (DXY) Chart by TradingView
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
