US Dollar Technical Outlook: DXY Rally Reversing Again, Watch Support

USD Technical Outlook

• DXY rally reversing again, a familiar pattern we’ve seen
• Watch the recent breakout area for signs of support

US Dollar Technical Outlook: DXY Rally Reversing Again, Watch Support

The US Dollar Index (DXY) is following a familiar pattern we’ve seen on a few occasions this year – strong rallies that look sustainable but then reverse lower. The breakout candle (Wednesday) above resistance discussed not long ago lasted a single day so far.

The breakout area, the August high and trend-line running over from the March high, is getting tested already. Support doesn’t seem likely to hold but we will give it the benefit of the doubt for now. If we see a strong test and reversal off support then perhaps the rally has further to go.

In this scenario, the March 2020 low that was validated in September of last year would be next up as resistance in the vicinity of 94.67. It may take a period of consolidating before this happens, but whether a rally would reconvene sooner or a little later it would in either case demonstrate a change in behavior from before.

For some time now the DXY has had a propensity to get a move started only to stop and reverse – a symptom of low volatility. If the same pattern is to continue, then support may hold, but will only be temporary before more weakness comes in.

In the event the same ole routine is playing out, then a break of support is seen as having the DXY head lower towards the May trend-line.

From a tactical standpoint, would-be longs may want to look to support to enter for a trend continuation. For those looking to take advantage of further weakness, waiting for support to break first may be the prudent way to go.

US Dollar Index (DXY) Daily Chart

DXY Chart by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX