US Dollar technical forecast: USD major support test ahead of Fed

US Dollar Index technical forecast: DXY weekly trade levels

• US Dollar Index attempting to mark fourth-consecutive daily decline ahead of Fed
• USD testing key pivot zone- risk for possible price inflection / downside exhaustion
• DXY resistance 104.63, 105.73-106.15, 108.09– support 102.75/99, 101.63 (key), 100

The US Dollar Index is off by more than 0.7% this week with DXY attempting to mark a fourth consecutive daily decline ahead of tomorrow’s highly anticipated FOMC interest rate decision. The sell-off is now testing the first major support barrier and the battle lines are well-defined heading into the Fed. These are the updated targets and invalidation levels that matter on the DXY weekly technical chart.

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US Dollar Index Price Chart – DXY Weekly

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Technical Outlook: In last month’s US Dollar Index technical forecast we noted that the rally in DXY may be vulnerable heading into a critical resistance zone, “ at 105.73-106.15 – a region defined by the 100% extension of the monthly advance, the December / January swing highs and the 38.2% Fibonacci retracement of the September decline.” The index registered an intraweek high at 105.88 before reversing sharply with a decline of more than 2.7% now approaching the first major inflection zone.

Key support rests at 102.75/99 – a region defined by the 61.8% Fibonacci retracement of the yearly range, the 2016 high-close, the 2020 high and the 2023 low-week close. (Note that two equal legs off the highs would stretch into 102.66). A break / weekly close below this threshold would expose broader uptrend support around the May 2022 low-close at 101.63- look for a larger reaction there IF reached.

Weekly resistance is eyed at the yearly high-week close at 104.64 with a breach / close above 106.15 still needed to suggest a more significant reversal is underway / resumption of the broader uptrend.

Bottom line: The US Dollar sell-off is approaching key support targets ahead of the FOMC rate decision tomorrow- watch the weekly close here. From a trading standpoint, a good zone to reduce portions of short-exposure / lower protective stops – rallies should be limited by 104.64 IF price is heading lower on this stretch. I’ll publish an updated US Dollar short-term outlook once we get further clarity on the near-term DXY technical trade levels.

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--- Written by Michael Boutros, Sr Technical Strategist with FOREX.com

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