US Dollar Technical Analysis for the Days Ahead

USD Technical Outlook

• US Dollar Index (DXY) reversed sharply lower on Friday
• Looking for momentum to continue to the downside
• Still a tough counter-trend trade as it has really only moved sideways the past month

US Dollar Technical Analysis for the Days Ahead

The DXY has weakened a bit since topping around a long-term slope. Friday’s sharp reversal lower further suggests it wants to roll over, but it has been a relatively difficult trade given the index is still trading roughly around the same levels from a month ago.

Friday’s sharp sell-off should bring in some more momentum this week if we are to see further weakening out of the dollar. There is a trend-line it is trying to hang onto rising up from early August, perhaps a firm break below will indicate it is about to get rolling downhill.

The first level of support I will be watching is right around 110, the current monthly low. A hold of that level could bring in further consolidation out of the DXY as it starts to digest its strength so far this year through a time correction versus an outright price correction.

However, a breakdown below 110 could bring into play a slope from February and the high prior to the last meaningful correction in July. Things appear to be pointing towards a larger move lower with the bond market showing signs that it may have finally or very near reached a point of capitulation.

Rates appear to be the hold-out here, so it will be important to get them turning around if the dollar trade lower is to pick up momentum. First the dollar topped in late September, then stocks bottomed out on CPI not long ago, bonds look like they will need to post a low to get the macro picture to a turn a bit and support dollar weakness.

US Dollar Index (DXY) Weekly Chart

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