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US Dollar Technical Outlook: Consolidation Within the Downtrend

US Dollar Technical Outlook: Consolidation Within the Downtrend

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USD, US DOLLAR, DXY INDEX - Technical Outlook:

  • USD’s rebound looks corrective.
  • The broader trajectory of the US dollar remains down.
  • What is the outlook on key currency pairs and the signposts to watch?
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DXY INDEX SHORT-TERM TECHNICAL FORECAST – NEUTRAL

Technical charts suggest it may be too soon to conclude the end of the global US dollar slide. The recent jump in the greenback appears to be a consolidation/correction within the overall downtrend, at least on the daily charts (relevant for swing/positional traders). While the rebound may have occurred over the past couple of weeks, minor cracks in the US dollar’s decline had been emerging since mid-January (see“US Dollar Technical Outlook: Slide Showing Signs of Fatigue?”, published Jan. 14).

The US dollar index (DXY Index) is holding above solid support on the 89-week moving average (WMA), roughly around the June 2022 low of 101.30, and the lower edge of the Ichimoku cloud on the weekly charts. Asthe previous update highlighted, the 89-WMA has provided support several times in 2019 and 2020. There is quite a strong hurdle at Tuesday’s high of 104.00. A break above the cap could pave the way toward solid resistance at the January high of 105.65, slightly below the 200-day moving average (DMA), now at about 106.50. The index would need to break above the end-November high of 107.20 for the recent rebound to be more than just corrective.

DXY Index Daily Chart

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Chart Created Using TradingView

EUR/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL

EUR/USD's drop below an uptrend line from November confirms that the immediate upward pressure has faded, but not necessarily over. The retreat has taken place from quite a strong resistance on the 89-WMA and the upper edge of the Ichimoku cloud. Having said that, EUR/USD hasn’t broken a price pivot yet on the daily chart. In this regard, the January low of 1.0485 is a vital cushion that coincides with the 200-DMA (now at about 1.0325). Any break below the 1.0325-1.0485 zone would confirm that the broader upward pressure had faded.

EUR/USD Daily Chart

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Chart Created Using TradingView

USD/JPY SHORT-TERM TECHNICAL FORECAST – NEUTRAL

USD/JPY’s break above minor resistance on intraday charts on a horizontal trendline from late January indicates that the downtrend is losing steam in the short term, raising the odds of a range developing in the short term. This follows a rebound from near a fairly strong support area, including, the May 2022 low of 126.30. USD/JPY faces plenty of barriers that could limit the rebound, beginning with the January high of 134.80, and the 200-DMA, near the mid-December high of 138.15.

USD/JPY Daily Chart

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Chart Created Using TradingView

GBP/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL

While the medium-term outlook for GBP/USD has been improving (becoming less bearish) in recent months (first highlighted in October), the near-term trajectory is less clear given the recent struggle to break past a key ceiling on the 200-DMA. For now, the 1.1800-1.2500 range remains intact (see the most recent update on GBP/USD highlighting the short-term scenario). A decisive break above the upper end of the range would confirm a bullish outlook on the daily chart. On the other hand, a break below the lower end of the range would trigger a minor double top (the December and January highs), potentially opening the way toward 1.1250.

GBP/USD Daily Chart

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Chart Created Using TradingView

AUD/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL

AUD/USD has nearly met the target of a minor double top pattern (the January and early-February highs) and is now testing a crucial cushion on a horizontal trendline at about 0.6850. This support is key, and any break below 0.6850 could trigger a minor head & shoulders-type pattern that would raise the odds of a drop toward the mid-December low of 0.6625. Immediate support is on the 200-DMA (now at about 0.6800). The higher-tops-higher-bottom pattern since late 2022 suggests that the broader trend remains up (see the recent AUD/USD update), even though the near-term outlook has shifted to neutral.

AUD/USD Daily Chart

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Chart Created Using TradingView

--- Written by Manish Jaradi, Strategist for DailyFX.com

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

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