US Dollar Short-term Outlook: USD Rally Rips to Resistance

US Dollar Index Technical Outlook: USD Short-term Trade Levels

• US Dollar rallies eight of the past nine days- surges more than 3% off yearly low
• USD rally now first test of uptrend resistance- risk for exhaustion / price inflection ahead
• Resistance 101.23/41, 101.73/77 (key), 102.62- Support 100.21 (key), 99.96, 99.59

The US Dollar Index rebounded off major trend support at the yearly lows last month with DXY surging more than 2.4% since the start of October. The rally takes the USD into the first major hurdle at uptrend resistance and the focus is on possible inflection off this level in the days ahead. Battles lines drawn on the DXY short-term technical charts.

US Dollar Index Price Chart – USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Technical Outlook: In last month’s USD Short-term Outlook, we noted that DXY had, “been trading into downtrend support for over a month now and the focus remains on a breakout of the September range for guidance. While a reversal candle off slope support yesterday does threaten a larger near-term recovery here, the broader technical outlook remains weighted to the downside while below the monthly-open.”

The Index ripped into the October open with a breach above the July downtrend clearing the September range highs. The rally has now extended more than 3% off the yearly lows with today’s advance testing the first major technical hurdle. Looking for a reaction off this mark into in the days ahead.

US Dollar Index Price Chart – USD 240min  

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Notes: A closer look at USD price action shows the index trading within the confines of an ascending pitchfork with the upper parallel further highlighting resistance here 102.95/99- a region defined by the 2016 high-close (HC) and the 2020 swing high. A breach / close above this threshold is needed to keep the immediate long-bias viable towards subsequent objectives at the 2023 yearly open at 103.49, the July low-day close (LDC) at 103.74 and the 61.8% retracement of the yearly range at 104.08- look for a larger reaction there IF reached.

Weekly open support rests at 102.48 with the near-term bullish invalidation set to the September high-day close (HDC) / high at 101.77/91. Losses below this level would threaten a larger pullback towards the lower parallels with such a scenario exposing the yearly open at 101.41 and the October open at 100.74- an area of interest for possible downside exhaustion / price inflection IF reached.

Bottom line: The US Dollar is testing uptrend resistance here on the heels of a 3% rally off fresh yearly lows- looking for a reaction up here. From a trading standpoint, a good zone to reduce portions of long-exposure / raise protective stops- losses should be limited to 101.77 IF price is heading higher here with a close above 103 needed to fuel the next leg.

The Producer Price Index (PPI) is on tap tomorrow and we’ll get a break in data until next Friday’s retail sales release. Watch the weekly closes here for guidance. Review my latest US Dollar Weekly Forecast for a look at the longer-term DXY technical trade levels. 

Key US Economic Data Releases

Economic Calendar - latest economic developments and upcoming event risk.

Active Short-term Technical Charts

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• Canadian Dollar Short-term Outlook: USD/CAD Bulls Charge Ahead of NFP
• Gold Short-term Outlook: XAU/USD Bulls at Major Hurdle Ahead of NFP
• Euro Short-term Technical Outlook: EUR/USD Plunges into October

Written by Michael Boutros, Sr Technical Strategist with FOREX.com

Follow Michael on X @MBForex