USD Technical Analysis: DXY Outlook in the Days Ahead

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USD TECHNICAL OUTLOOK

• US Dollar Index (DXY) continues to slide after trend extreme
• Currently trading around a level that may provide support

 

USD TECHNICAL ANALYSIS: DXY OUTLOOK IN THE DAYS AHEAD

The US Dollar Index (DXY) is continuing its recent run of weakness as it pulls back sharply from recent highs. The extremes in bullish sentiment suggested the dollar needed to cool off, and so the recent slide isn’t surprising.

The question is, is whether the USD can reassert its bullish ways quickly, or if it will need some time to digest the run before continuing higher. It’s also possible we are seeing a larger reversal, but at this time that appears to have a lower probability than an eventual trend continuation.

In any event, the DXY is trading around its first level of support via a swing low created on May 5 at 102.35. This is below the trend-line extending higher from the late March low, but even though the trend-line has been broken it doesn’t mean we will necessarily see further weakness.

However, if we see the DXY closes on a daily basis below price support then look for weakness to continue with the 102.35 level turning into a potential source of resistance. The next level up could be the backside test of a 20-year trend-line down near 101, but conviction is lacking in that acting as support until we see the DXY trade around it and show bullish price action.

If support at hand can hold and the DXY pushes higher here, then we may be in for a rangebound period of trading that would do the USD some good in terms of building a base for another run higher. Given the big move and extreme bullishness recently surrounding the dollar a little time would do it some good.

US DOLLAR INDEX (DXY) DAILY CHART

DXY Chart by TradingView

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---Written by Paul Robinson, Market Analyst. DailyFX  | 23rd May 2022