US dollar index trading towards support, watch long-term channel

The US dollar is trading towards significant support, that keeps the outlook neutral at worst if it holds, but if it breaks could spark selling pressure.

US dollar technical outlook

  • US dollar index (DXY) is falling towards significant support
  • Channel keeps outlook neutral to bullish, breakdown would be significant

DXY is falling towards significant support

The DXY is heading lower towards a significant threshold of support. The index has been grinding its way higher since the middle of 2018, forming a channel that is once again on the verge of getting tested.

As a result of the tight trading conditions we have seen volatility drop sharply, but that isn’t likely to last much longer as the yearly range-to-date for the DXY is the smallest, if it holds, since 1976. This extreme appears to be unsustainable as it was back then when the following year saw an expansion in volatility.

Given the support not far below around the 97-line, it will first be viewed as a spot to look for the DXY to hold. Should we see a bullish reaction off this line, longs may get another lift higher towards the cycle highs over 99 to the psychological level of 100 near the top of the channel.

If a breakdown develops, one confirmed by a weekly closing candle below the lower-bound of the channel into the area highlighted by the red box below, then the market could begin to quickly adjust its positioning and spark a sizable sell-off. For now, though, support is support until it isn’t.

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DXY weekly chart (channel significant to outlook)

DXY daily chart (nearing support)

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