US Dollar (DXY) Analysis
- The basket of the US dollar is turning into an important long-term level after yesterday’s rally
- DXY is testing channel resistance as we head into the weekend with the debt ceiling issue still unresolved
- The analysis in this article is used chart patterns and key Support and resistance levels. For more information visit our comprehensive website Educational library
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DXY is turning into a major long-term support
If we are to close the week in positive territory, yesterday’s surge in the dollar should cause a lot of heavy lifting. The weekly chart below shows the significance of the 100.85 level/area that came into play during March-May 2020, again in May 2022 and multiple times in 2023 already.
Although bullish impulses for the dollar are few and far between, the bears on the dollar seem to require more of an external shock to get the momentum needed to send the dollar lower. The two dark clouds hanging over the markets right now are the unresolved debt ceiling problem that could slide back (end of May), and the resurgence of regional banking instability earlier this month.
Weekly chart of the US dollar basket
Source: TradingView, prepared by Richard Snow
The daily chart highlights the dollar’s tendency to trade sideways since breaking out of the descending channel. Price action has been largely contained within the new horizontal channel as markets digest the effects of potential interest rate stops – this is the consensus market view.
With prices testing the upper side of the channel, traders should be alert for a breakout, or more likely, a false breakout due to lower volatility (see ATR indicator, downward sloping brown/red line). More volatile market conditions are usually more conducive to breakouts as traction is easier to gain. However, given the level of uncertainty around US regional banks and the US debt ceiling, sudden bursts of volatility cannot be ruled out.
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Resistance is on the upper side of the horizontal channel at 102.20 while support is on the lower side of the same channel at 101.30/101.00.
USD Basket Daily Chart (DXY)
Source: TradingView, prepared by Richard Snow
– Posted by Richard Snow for DailyFX.com
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