USD TECHNICAL OUTLOOK:

• DXY trading towards important resistance test.
• A sustained breakout is possible, but conviction lacks.
• Price action may continue to contract through the rest of the year.

US DOLLAR TECHNICAL OUTLOOK: NEARING AN IMPORTANT TEST

The US Dollar Index (DXY) is trending higher and on the verge of testing an important set of resistance levels as we head towards the final frame of the year. The August high at 93.72 and top-side trend-line running over from March stand in the way.

A breakout above these thresholds could keep the DXY running higher, but conviction lacks with a low volatility environment dominating the tone of trading these days. But should we see a breakout occur with conviction, then the next big level of resistance arrives at the March 2020 low. This is a level that was quick to act as resistance back in September.

It is quite possible that the 2020 level is important again as it began during a historical time for the market. We will monitor momentum should we see price run to that point to determine the extent to which the dollar may or may not want to continue beyond there.

First up, though, is getting behind the near-term threshold mentioned to start the discussion. If we see a turnabout, a rejection of some sort around the 93.72/85-area then look for the narrowing price action to continue as the DXY retreats. In this scenario, the trend-line from May could come into focus as support.

For now, simply watching how price action behaves as resistance nears. From a tactical standpoint, existing longs with near-term objectives may want be on alert for some type of reaction to occur soon that would call for buttoning up trailing stops. For would-be longs, a breakout doesn’t ensure a path higher, but will add conviction that maybe a sustained move to at least the March 2020 low in in the works. For would-be shorts, a reversal off near-term resistance may provide a trade lower towards the May trend-line.

US DOLLAR INDEX (DXY) DAILY CHART

DXY Chart by TradingView

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Written by Paul Robinson, Market Analyst, 27 September 2021. DailyFX