USD Technical Outlook

  • US Dollar Index (DXY) is in position to post an important lower-high
  • Sell-off could be rather aggressive as longs unwind

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US Dollar Technical Analysis: Lower-high Confirmation in Progress

Last week, I looked at the US Dollar Index (DXY) and suggested we may see a lower-high develop after the powerful reversal that took shape last month around a long-term slope. Conviction was somewhat lacking in this notion in the absence of solid price action.

With Thursday’s worst-than-expected CPI print we saw a strong reversal in the dollar to the downside while stocks and all-things-hurt-by-USD strength turned higher. This theme now appears poised to continue as we get a new week started.

A bit of a range has developed surrounding Thursday’s spike and reverse. A breakdown below 112.47 should have the DXY rolling lower, and perhaps in very aggressive fashion as the market remains extended on a larger-scale basis.

There is a minor trend-line rising up from August that lies just below the breakdown point, but isn’t expected to be much of a threat to shorts if indeed a lower-high was just posted. Look for stocks and other assets to gain a strong bid on an aggressive dollar sell-off.

The recent low at 110.07 could quickly come into view as the next significant level of support. This could cause a bit of volatility even if the DXY is heading lower, yet. The thinking is that we may see price sink back to the slope from February before it stabilizes. Generally speaking, the longer-term trend is still up but corrections along the way will happen.

To negate the near-term bearish bias a firm rise above 113.90 will need to develop. But even on that the prior high near 115 and the slope will become focal points again as potential resistance. At best for the moment it looks like the outlook could become neutral but would be very cautious on turning bullish.

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US Dollar Index (DXY) Weekly Chart

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US Dollar Index (DXY) Daily Chart

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DXY Chart by TradingView

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—Written by Paul Robinson, Market Analyst

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