New Cycle Highs Around the Bend

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USD Technical Outlook

  • US Dollar Index (DXY) poised for a breakout this week
  • An eventual week with FOMC as the big potential mover

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US Dollar Technical Analysis: New Cyclic Highs Around the Curve

The US Dollar Index (DXY) has been treading water in recent days after the CPI print last Tuesday sent markets into scramble mode. This week we have FOMC as the big main event, with BoJ and BoE following in the same 24 hour period.

From a technical point of view, the trend is up and the Dollar index looks poised to break above the recent high at 110.78. Whether that happens before or after the Fed is of course to be seen. Either way it will turn the trend around a lot, but we could see the DXY weaken shortly before heading higher.

If this is the case in the very near term, keep the bottom of the recent anger at 109.27 in focus as the first line of support. The index is digesting nicely around the July high at 109.29. A small break could be in order for a possible validation of the budding trend line of the August low.

If real selling is coming, then look to the low before CPI at 107.68. It seems unlikely that we will see that level anytime soon, but it cannot be ruled out given the explosive moves we have seen around the Fed.

Seasonality for stocks, which is applicable to the dollar considering the inverse relationship, is at its weakest point now, so this would suggest a dollar tailwind. The thinking is that we will see a new cycle low in stocks next month and possibly a tradable low.

Given the above, this would mean that the dollar is likely to remain bid for a little longer before any meaningful correction can develop.

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Daily Chart of US Dollar Index (DXY).

DXY 2022 09 19 08 44 18

DXY chart from TradingView

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—Written by Paul Robinson, Market Analyst

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