The US Dollar is testing critical support into the yearly low with traders bracing for the FOMC rate decision. Battle lines drawn on the DXY short-term technical chart.
By : Michael Boutros, Sr. Technical Strategist
US Dollar Index Technical Outlook: USD Short-term Trade Levels
- US Dollar plummets nearly 3.7% off August high- now testing key support at yearly low
- USD risk for possible exhaustion / price inflection- Fed interest rate decision on tap
- DXY Resistance 97.06, 97.71/ 86 (key), 98.68/69- Support 96.38/65 (key), 96.03, 94.63/97
The US Dollar plunged into support near the yearly low today with DXY poised for a third consecutive weekly decline. The focus now shifts to tomorrow’s highly anticipated Federal Reserve interest rate decision, and the fate of the USD hangs in the balance as traders look for guidance on the outlook for monetary policy. Battle lines are drawn on the DXY short-term technical charts heading into FOMC.
US Dollar Index Price Chart – USD Daily
Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView
Technical Outlook: In last month’s US Dollar Short-term Outlook we noted that the DXY was testing, “key support at the monthly range lows, and the focus is on a possible inflection off this mark in the days ahead. From a trading standpoint, rallies would need to be limited to 99.58 IF price is heading lower on this stretch with a break below the July up-slope / 97.71 needed to fuel the next leg of the decline.” The index broke below support last week with the DXY plunging more than 2.1% off the monthly high ahead of tomorrow’s rate decision. The decline is now testing initial support at the 2025 low / low-day close at 96.38/65- risk for possible exhaustion / price infection off this mark 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 DXY trading within the confines of a descending pitchfork extending off the August high with the 25% parallel now converging on the 96.38/65 support zone. A break / close below would expose subsequent support objectives at the 100% extension of the August decline at 96.03. Ultimately, a break below the lower parallel would be needed to fuel the next leg of the decline towards the next major technical consideration at 94.63/97- a region defined by the 2022 low and the 100% extension of the broader 2022 decline.
Initial resistance is eyed at the 61.8% extension at 97.06 with bearish invalidation now lowered to the 2018 swing high / 61.8% retracement of the July rally at 97.71/86. A topside breach of this formation would be needed to suggest a more significant low is in place / a larger trend reversal is underway with subsequent resistance objective eyed at the May low / August high-day close (HDC) at 98.68/69- look for a larger reaction there IF reached.
Click the website link below to Check Out Our FREE “How to Trade EUR/USD” Guide
https://www.cityindex.com/en-uk/whitepapers/
Bottom line: The US Dollar has plunged into support at the yearly lows with major event risk on tap tomorrow- risk for some inflection here. From a trading standpoint, a good zone to reduce short-exposure / lower protective stops- rallies would need to be limited to 97.86 IF price is heading lower on this stretch with a close below the lower parallel needed to fuel the next major leg of the decline.
Keep in mind we get the release of the Fed’s updated Summary of Economic Projections, and traders will be focused on the interest rate dot plot for guidance on rates. Markets are fully priced for a 25bp cut tomorrow with Fed Fund Futures calling for three-cuts this year and the changes to the forecasts on growth, inflation and employment could impact interest rate expectations in the weeks ahead. Stay nimble into the release and subsequent presser and watch the weekly close here for guidance. Review my latest US Dollar Weekly Forecast for a closer look at the longer-term DXY technical trade levels.
Key US Economic Data Releases
Economic Calendar - latest economic developments and upcoming event risk.
Written by Michael Boutros, Sr Technical Strategist with FOREX.com
Follow Michael on X @MBForex
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.