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USD Technical Analysis: DXY Declining Towards Big Level, Watch the Euro

US Dollar (DXY) Highlights:

  • US Dollar Index (DXY) heading towards test of significant level
  • EUR/USD interesting short-term techs, the bulk of the DXY index
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The US Dollar Index (DXY) has been on a two-week run of weakness and is nearing a major long-term level again. There is a trend-line from 2011 (w/ a prominent parallel slope that impacted the past couple of years) and an on-and-off again level that began all the way back in 1998.

The confluent zone of support helped forge at the least a short-term low early in September, but was it only enough to provide temporary strength or was the low more meaningful and long-term in nature? A drop down into the mid-92s will have the DXY thoroughly testing again, with 91.75 as the big make or break level.

A decline below 91.75 is seen as potentially having the 2018 low at 88.25 in play. That would be a sizable leg lower for the Dollar. However, a successful retest could potentially end up as seeing the DXY attempt to make good on the September low as a meaningful turning point.

DXY Weekly Chart (2011/1998 levels in confluence)

DXY weekly chart

DXY Chart by TradingView

The Euro makes up ~57% of the DXY, and thus it runs the show with how the index moves. In the near-term there is a technical structure on the 4-hr time-frame chart of EUR/USD has potential for helping decide the near-term direction. The channel developing over the past couple of weeks is keeping EUR/USD neatly pointed higher for now. A break outside the channel could either accelerate the move higher and conversely a break below the lower parallel could get price rolling downhill.

The drive higher would put the DXY further into retest territory and potentially lead to a break of the 91.75 level, while a break of the channel will at the least allow the DXY to live to fight another day, and could possibly be the beginning of rounding the corner for a broader move higher.

EUR/USD 4-hr Chart (watching the near-term channel)

EUR/USD 4-hr chart

EUR/USD Chart by TradingView

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX