US Dollar Index (DXY) Has Potential to Run Towards Test of Important Resistance
USD Technical Outlook
- US Dollar Index (DXY) broke near-term downward channel
- March trend-line, September low could come into play soon
- A test of resistance could mark important test of the downtrend
DXY has room to trade higher into resistance test
The US Dollar Index (DXY) is in bounce mode with some room to run before an important test of resistance takes shape. This is developing within the context of a medium-term downtrend following a turn from support, which makes it particularly interesting to see how such a test may play out.
What is giving the move more breathing room is the breaking of a downward sloping channel (most easily seen on the 4-hr) chart. Conversely, as looked at in the weekly Euro technical forecast, EUR/USD (57% of the DXY weighting) is falling out of a rising channel.
Another factor helping bolster the bullish case now is the fact that the top of a support zone was tagged last week, which led to a weekly reversal candle. The zone dates to the 2009 high that became resistance in 2019 and support in 2018. Will this turn higher mark a major low as it had three years ago?
That is hard to say now, but perhaps if that is the be the case there will be a more thorough testing of support that drags out a few weeks to a few months. But a rally from here to the September 1 low at 91.74 and trend-line from March would qualify as a good countertrend test that could help provide more clarity on the broader trend.
On the sentiment front, a weaker USD has become a prevalent theme amongst market participants, so from a contrarian standpoint the status quo may be overdue for a testing if not outright reversal.
US Dollar Index (DXY) Weekly Chart (turning from support towards resistance)
DXY 4-hr Chart (broke downward channel)
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.