USD Technical Analysis: Euro Parity Bounce Leading to Important First Test

[MongiIG]

Jul 19, 2022 | DailyFX
Paul Robinson, Strategist

USD TECHNICAL OUTLOOK

• US Dollar Index (DXY) decline largely driven by Euro parity rebound
• Levels and lines to watch in the days ahead

USD TECHNICAL ANALYSIS: EURO PARITY BOUNCE LEADING TO IMPORTANT FIRST TEST

The DXY index is coming off with good momentum from its recent peak on the back of a rally from just under parity in the Euro. Given that EUR accounts for about 57% of the DXY’s weighting the index will react in near inverse fashion.

The correction in the trend may be short-lived, but we may very well see a period of horizontal price action develop before the broader trends try to reassert themselves. What this move doesn’t look like at this time is a big-picture reversal. That would take a good bit more of time to get a handle on if it is.

The first levels to watch in the DXY and EUR/USD are 10581 and the 10340s, respectively. The DXY support level is a solid one with both the June high and a trend-line from May coming into confluence around the same price point.

The EUR/USD has the 2017 low at 10340, which is just a fraction lower than a pair of lows that developed in May and June. A short ways higher above those lows is a channel line dating to February. It’s a strong channel given its duration and connecting points, including the recent one just under parity.

The thinking is that we will see a bit more of the recent trends unfold, but soon support/resistance DXY/Euro will offer up some type of reaction points. How impactful those levels are will help determine whether a larger move can unfold or if the corrective move is over.