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US Dollar Technical Analysis: DXY, EUR/USD Set up to Reverse

USD Technical Outlook

  • US Dollar Index (DXY) is stalling around the 2017 high
  • Sentiment extreme suggests soon we at least see a correction
  • Recovery bounce in store for the EUR/USD
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US Dollar Technical Analysis: DXY, EUR/USD Set up to Reverse

The US Dollar Index (DXY) is currently stalling around the 2017 high of 10382. On Thursday, the index crossed the threshold momentarily before reversing to close the session beneath, creating a high to watch at 10393.

The turn down hasn’t been very aggressive so far, and may remain that way if we are only to see a correction of the recent move higher. The environment may turn choppy, indeed suggesting a decline will only be corrective in nature.

This would do the USD index some good as bullish sentiment hit a feverish pitch last week. According to the Daily Sentiment Index (DSI), bullishness hit 95% on a couple of days – a level commonly seen around turning points.

If we see another push this week above last week’s high, it will be worth noting if the DXY can stay above it. A failure to stay above last week’s high may further indicate exhaustion in buying. An ideal scenario for would-be shorts could be if we see a short burst to new highs followed by a quick reversal back below the 10393 level.

To reiterate, giving the trend the benefit of the doubt, only a correction is anticipated. This outlook could change, however, if we see aggressive downside price action that suggests a larger reversal is at hand.

The EUR/USD is nearly 58% of the DXY index, and as such the outlook then is for it to bounce. There currently isn’t any great levels at its feet like the DXY, with the 2017 low not arriving until 10340. Last week’s low is at 10470. Resistance first clocks in at 10636, the March low.

US Dollar Index (DXY) Daily Chart

DXY daily chart

DXY Chart by TradingView

EUR/USD Daily Chart

EUR/USD Daily Chart

Resources for Forex Traders

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX