US Dollar Technical Outlook: Dip Bringing Trend Support into Play

[MongiIG]

USD TECHNICAL OUTLOOK

• DXY dipping into trend support dating to June
• Weekly reversal candle at odds with support
• How things unfold at support will be determinant

US DOLLAR TECHNICAL OUTLOOK: DIP BRINGING TREND SUPPORT INTO PLAY

The US Dollar Index (DXY) is weakening a bit after sprinting to its best levels since July 2020. This has the DXY at an interesting spot, with it sitting on a strong slope dating to June. It is also in confluence with a level from last summer, but the focal point is the slope.

Last week’s reversal induced a bearish reversal candle that implies momentum could continue lower. With that in mind, testing support following a reversal makes for an interesting test of the DXY’s multi-month uptrend.

The general rule of thumb is that support is support until it isn’t, and so for the immediate future as long as support holds then the USD’s outlook is seen as neutral at worst. A hard turn off the line could negate the bearish weekly reversal at some point.

However, if we see support break, then further weakness is expected. In the event we see this play out the next significant level to watch is the March 2020 low that was validated in September of last year and this year. The level is right around 94.67.

This would make the for deepest retracement since the uptrend began in June and doesn’t necessarily mean the trend is over, but it would be important to see that key level hold if longs are to maintain their appeal.

For now, would-be longs may want to use slope support as a line to take an entry from, or wait and see if there is a reversal higher first. This latter approach would perhaps offer up a more appealing set-up with there being a low created on the slope before taking entry.

For those currently holding long positions the slope could be used to determine trailing stops. For shorts, the trend is up even if support breaks, but a break of support is seen as likely to usher in more selling.

US DOLLAR INDEX (DXY) DAILY CHART

DXY Chart by TradingView

Resources for Forex Traders

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, 30th November 2021. DailyFX