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US Dollar (DXY) Technical Forecast: Prints Fresh 6-Week High, Retracement Incoming?

US Dollar (DXY) Technical Forecast: Prints Fresh 6-Week High, Retracement Incoming?


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The US Dollar enjoyed its third successive week of gains thanks to upbeat US data and hawkish Federal Reserve policymakers. US PPI this week gave an indication that inflation remains a concern, something which was echoed by Fed policymaker Loretta Mester who said that data justified a 50bps hike at the Fed’s February meeting. James "Jim" Bullard meanwhile said he wouldn’t rule out a 50bps hike in March which sent the Dollar Index (DXY) higher.

Markets are now resigned to the fact that rate cuts in the second half of 2023 appear unlikely, with the Fed Funds peak rate for December 2023 climbing from 4.35% at the beginning of February to 5.1% currently.


US Dollar Index (DXY) Weekly Chart

Chart, histogram  Description automatically generated

Source: TradingView, prepared by Zain Vawda

From a technical perspective, the weekly chart for the dollar index (DXY) is on course to print a third week of gains but looks set to close as a doji candlestick following a retracement during Friday’s US session. Although further upside remains a possibility, the last time the DXY went on a 4-week or more bullish run was in April 2022. This coupled with a doji weekly candle close hints at the possibility of some retracement in the week ahead. If we are to push higher resistance rests at the 105.00 psychological level, with a host of confluences including the 38.2% Fib level and 50-day MA. Technically this rally in the DXY remains a corrective one with the November 21 swing high at 107.90 needing to be cleared first before we can safely say we have shifted bullish once more.

US Dollar Index (DXY) Daily Chart

Chart  Description automatically generated

Source: TradingView, prepared by Zain Vawda

A further sign that we could be in for some retracement next week lies in the daily chart. The dollar rally seemed to run out of steam on Friday with the daily candle set to close as a shooting star, signalling the potential for further downside ahead. Having failed to clear the swing high at 105.60 printed on January 6, the daily timeframe remains in a bearish structure. A push lower may find support at the 50-day MA resting at 103.300 with the top of the recent range at 103.00 just below another point of interest.


USD/CAD Daily Chart

Chart  Description automatically generated

Source: TradingView, prepared by Zain Vawda

USDCAD enjoyed an excellent week of gains printing a higher high on the daily timeframe. The pair has been stuck in a 250-300 pip range since the start of the year with that trend continuing as the pair found resistance at the top of the range which coincides with 50 and 100-day MAs. Given that we have printed a new higher high retracement seems likely in order for a lower low to form and would keep USDCAD rangebound with support resting at the 1.3400 and further down at 1.32500 (range low and 200-day MA). A break above the range high at 1.3525 would see us head toward resistance at the 1.3700 handle.

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BoC Governor Tiff Macklem confirmed that the central bank will continue with its rate hike pause despite the economy ending 2022 much stronger than expected. “We’re still a long way from our inflation target, but recent developments have reinforced our confidence that inflation is coming down,” he said in prepared testimony for the House finance committee on Feb. 16. Given that the US Federal Reserve are still expected to hike rates moving forward the Canadian Dollar could face further losses in the months ahead.


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--- Written by Zain Vawda for

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.