US dollar price outlook: DXY - FOMC game plan

The dollar is taking a respite after a three-week sell-off crashed through multi-year support. We take a look at the levels that matter on the DXY chart heading into FOMC.

US dollar talking points

  • US dollar recovery vulnerable heading into Federal Open Market Committee (FOMC) - risk is lower sub-98.87
  • FOMC interest rate decision on tap next week- exhaustion risk

Greenback looks to snap losing streak

The US dollar is attempting to snap a three-week losing streak with the index up just 0.36% mid-week. However, the recovery is likely to be short lived as the broader risk is still weighted to the downside after breaking below multi-year slope support on Friday. These are the updated targets and invalidation levels that matter on the DXY weekly price chart heading into FOMC on Wednesday.

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The US Dollar Index tested major uptrend resistance into the start of October trade before making an about-face with the subsequent decline taking out multi-year trendline support last week. We’re looking for topside exhaustion on this recovery with initial resistance eyed at 97.87, as key resistance stands with the 61.8% retracement of the October high-week close at 98.70.

The first major support hurdle is eyed around 96.80, a level where the 61.8% retracement of the yearly range converges on basic trendline support. Keep an eye out for a bigger reaction there if that level is reached. A break below this threshold is needed to validate a larger reversal in the greenback with such a scenario targeting the yearly open at 96.14 and the yearly low-week close at 95.66.

US dollar: the bottom line

A three-week sell-off in the US Dollar Index has broken multi-year uptrend support so we are on the lookout for topside exhaustion with the FOMC interest rate decision on tap next week. From a trading standpoint, we are looking to fade a high below 98.87 with a break below 96.80 needed to show a more significant correction is underway in the currency. Ultimately, a close above 99.43 would be needed to signify a resumption of the broader uptrend.

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