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US Dollar Technical Outlook: Shape-shifting Creating Bullish Pattern

US Dollar Technical Outlook: Shape-shifting Creating Bullish Pattern

Paul Robinson, Strategist

USD Technical Outlook

  • DXY wedge formation turning into bull-flag
  • Pattern suggests higher levels are on their way

US Dollar Technical Outlook: Shape-shifting Creating Bullish Pattern

The US Dollar Index (DXY) was putting in a wedge pattern from around the 3rd week of November until just prior to Christmas before price broke down out of it. The break also put price below a slope from June, suggesting we would see lower levels in the days/weeks ahead.

The move lower was quickly halted and with the past couple of days we are seeing a strong snap-back out of the DXY. This is bringing into view a new pattern, a bull-flag. Within the context of the broader trend higher since the middle of 2021 this is a bullish-looking s.

Given that it has been developing for the past six weeks, its duration makes it a healthy corrective pattern. We could see a short-term swing lower from here, but as long as we maintain above the lower parallel, and ideally 95.57 (most recent swing-low), then the pattern will remain valid.

A breakout higher from here and climb above 96.94 will have the DXY rolling towards better levels. The next swing level to watch following a breakout arrives at 97.80, a minor swing-high from June 2020. Beyond there, congestion from just after the pandemic began between 99 and 100 will come into play.

Before getting ahead of ourselves we first need to see if the bull-flag can trigger. There might be some more backing-and-filling before this unfolds, so traders may need to continue to demonstrate patience in waiting for a solid signal.

US Dollar Index (DXY) Daily Chart

usd, dxy daily chart

DXY Chart by TradingView

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Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---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.