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US Dollar Technical Analysis: DXY Trying to Turn Bounce into Sustained Rally

US Dollar Technical Analysis: DXY Trying to Turn Bounce into Sustained Rally

Paul Robinson, Strategist

USD Technical Outlook

  • US Dollar Index (DXY) still in range in a macro context
  • Can’t rule out that we aren’t seeing a big shift higher
  • Shorter-term levels and lines to watch for cues
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USD move corrective or becoming some more?

Since the early days of the year the U.S. Dollar Index (DXY) has been firming up, with the current leg acting as a second attempt at a run. But is it corrective or the beginning of something larger? On the monthly chart the Jan low came around a support zone back to 2009.

For about the past five years the DXY has been relatively range-bound, so it is possible that taking into consideration support and a broadly trend-less market, that we could see another swing back above 100. And be relatively meaningless in the grand scheme of things.

From a trading perspective, though, that would be quite the meaningful move if the DXY rallied towards the 2017/2020 highs between 103 and 104.

Right now, the DXY is above the September low, a level that was carved out around an area dating as far back as 1998. Furthermore, the index is working on clearing the top of a developing channel. This could soon see the DXY trading at the declining 200-day MA at 92.91.

From a tactical standpoint, buying into the rally may pose pullback risk. Would-be longs may want to consider joining in on a minor pullback/consolidation sequence versus paying up here. On the flip-side if we see the DXY turn lower here with vigor, then perhaps the notion of a corrective move will still prove valid. If that happens, then would-be shorts may look for the next move to take price to the lower parallel around 90.

All-in-all, momentum is favorable for higher prices, but to get a sense if it is a sustainable rally or not a test of the current move may be necessary to provide better cues for taking action.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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