US Dollar Technical Outlook:
- US Dollar Index (DXY) rallying off support
- Keeps upward trend generally intact as long as it lasts
- FOMC on Wednesday, rise in volatility to be expected
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US Dollar Index (DXY) rallying off support
Ahead of the FOMC on Wednesday, the US Dollar Index (DXY) is thus far getting a strong bid off a confluence of support arriving via a trend-line (underside of a weekly wedge pattern) coupled with the 200-day MA.
The ‘line-in-the-sand’ currently stands at the trough of last week’s swing-low of 96.46, but is moving higher in-line with the slope of the trend-line/MA combo. As long as price stays above support, then the trading bias is neutral at worst to bullish. However, it is unclear yet if we will see sustained momentum on this upswing, as rallies for quite some time have run out of steam in relatively short periods of time.
If the DXY can keep up a good pace, though, in the days ahead it could once again find itself in a battle with the 98.30s, the capper on the past two rallies. A breakout to the best levels seen in over two years will still be viewed with a wary eye, however; because as it stands in this low-volatility environment chasing momentum has been an unfruitful endeavor.
If the Dollar weakens again, watch how support is treated on a retest. Should it break it would seem that sellers will show up in earnest as the market is caught leaning the wrong way. Bottom line is, weakness appears more likely to spur volatility than further strength.
Check out the IG Client Sentiment page to find out how changes in positioning in major markets could signal the next price move.
US Dollar Index (DXY) Weekly Chart (Wedge)
US Dollar Index (DXY) Daily Chart (Rising support remains in place)
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at@PaulRobinsonFX