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US Dollar Technical Forecast: USD Bounce in Focus Ahead of FOMC

US Dollar Technical Forecast:

  • The USD continued its September bounce this week, showing six consecutive days of gains while building in a series of higher-highs and higher-lows.
  • The big item on the economic calendar for next week is FOMC, and this is the first rate decision after the bank’s strategy shift was communicated at the Jackson Hole Economic Symposium.
  • This article incorporates price action and trendline analysis while looking at the USD, and if you’d like to learn more about either, we offer education on these topics in DailyFX Education.

US Dollar Sell-Off Sinks to Support to Start September – Now What?

So far September has brought a bit of hope to USD bulls, as the US currency finally ran into some element of support that could stem the declines that’d become commonplace in the months prior. This support zone was looked at a couple of weeks ago, highlighting a few different mechanisms in place in a very tight proximity of each other. This confluent area on the chart came into play on the very first day of September; and since then, sellers have been unable to break any fresh ground.

US Dollar Weekly Price Chart: Confluent Support Holds the Lows

US Dollar Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Also taking place since that September 1st support inflection: Six consecutive days of gains in DXY – and this is the first time that’s happened since the coronavirus started to get priced into Western markets in late-February. That six-day-streak came to an end on Wednesday of last week; and the pullback in the USD strength theme lasted through the ECB rate decision the morning after. At that meeting, the European Central Bank didn’t appear to be overly concerned about Euro-strength and the natural reaction was a quick topside pop, which amounted to a deeper pullback in USD.

But – the Dollar soon caught support and then went back into bull mode as buyers came back to the table. At this point, the four-hour chart below highlights both a recent higher high and higher low that can keep the door open for bullish continuation prospects.

US Dollar Four-Hour Price Chart

US Dollar Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

US Dollar Price Action for Next Week

The big looming item in the week ahead is the FOMC rate decision on Wednesday. And given the recent shift at the Fed, in which Jerome Powell said that the FOMC is now targeting ‘average inflation’ while casting a more watchful eye on unemployment, it’ll be interesting to hear the banks’ stance on how exactly that impacts their expectations for monetary policy in the near-term.

What’s interesting around this recent shift is that one would likely expect some USD-weakness in response; and to be sure, in the immediate days after that announcement, that’s what happened. But at this point, on net, the US Dollar is higher than it was when Chair Powell made that remark. So, while the Fed has even more wiggle room with potential rate hikes in the event that inflation continues to print above expectations, as it did on Friday; the Greenback has continued to climb after that really big zone of support came into play earlier this month.

The forecast for the US Dollar will be set to bullish for the week ahead, looking for more pronounced tendencies of topside price action as the end of Q3 nears.

US Dollar Technical Forecast for Next Week: Bullish

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX