US Dollar Technical Forecast: USD Trump Rally Halted Ahead of Fed

US Dollar Index Technical Forecast: USD Weekly Trade Levels (DXY)

• US Dollar rally extends 5.28% off yearly low- Trump tally exhausts into trend resistance
• USD September rally vulnerable into monthly open- Fed interest rate decision on tap
• DXY resistance 104.87/97(key), ~105.60s, 106.04/11– Support ~103.65, 102.99, 102.17(key)

The US Dollar marked the largest single-week range since the late-September reversal with the DXY rally extending nearly 5.3% off the yearly low. The Trump election rally faltered into technical resistance yesterday and the focus is on possible price inflection off this threshold in the days ahead. These are the updated targets and invalidation levels that matter on the DXY weekly technical chart heading into the FOMC rate decision.

US Dollar Price Chart – USD Weekly (DXY)

Technical Outlook: In last month’s US Dollar Technical Forecast we noted that a, “rebound off downtrend support is now approaching downtrend resistance- looking for a reaction up here with the rally vulnerable into 105. From a trading standpoint, a good zone to reduce portions of long-exposure / raise protective stops – losses should be limited to the yearly moving average IF price is heading for a breakout here with a close above 105 needed to suggest a larger trend reversal is underway.”

Over the past two-weeks the DXY has tested both the upper and lower bounds of this range with the index holding just below confluent resistance at 104.87/97- a region defined by the February high, the 61.8% extension of the 2023 advance, and the July high-week close. The five-week advance remains vulnerable below this threshold heading into the Federal reserve interest rate decision later today.

 Initial weekly support rests along the 52-week moving average (currently ~103.65) backed by the 2016 high-close / 2020 high at 102.99. Key support / bullish invalidation now raised to the 61.8% retracement of the September advance at 102.17- a close below this threshold would threaten resumption of the yearly downtrend towards the 2024 open at 101.41 and beyond.

A breach of this key resistance hurdle exposes the 2023 trendline (red) – look for a reaction there IF reached with a close above needed to suggest a larger breakout is underway here towards the 2023 / 2024 high-week closes at 106.04/11 and the 50% retracement of the 2022 decline at 107.18- both areas of interest for possible exhaustion / price inflection IF reached.

Bottom line: The US Dollar rally failed into confluent resistance this week and while the medium-term outlook remains constructive, the immediate rally may be vulnerable here. From a trading standpoint, a good region to reduce long-exposure / raise protective stops- again, losses should be limited to the yearly moving average IF the USD is heading higher on this stretch with a close above 105 needed to fuel the next leg in price.

Keep in mind the Federal Reserve interest rate decision is on tap in just a few hours with market participants pricing a 25bps cut. Likely to get a bit more volatility during the Q&A with Chair Powell- stay nimble into the release and watch the weekly close here for guidance. Review my latest US Dollar Short-term Outlook for closer look at the near-term DXY technical trade levels.

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--- Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex