US Dollar Short-term Outlook: USD Breakout Faces Major Test at January High- NFP on Tap

US Dollar Index Technical Outlook: USD Short-term Trade Levels

• DXY surges 1.5% into the start of the month after breaking through the February range highs
• Price is now pressing into resistance near the January high-close, a key pivot that must be cleared to confirm further upside- NFP on tap tomorrow.
• A sustained move above this zone would strengthen the recovery narrative, while failure here risks a near-term pullback toward layered support.
• DXY Resistance 99.36/38 (key), 99.38, 100.16/35- Support 98.55/68, 98.24 (key), 97.87/97

The US Dollar has pushed higher after breaking out of the February range, reclaiming ground steadily into the start of March. The advance now brings DXY back to a key resistance area marked by the January high-close, where prior rallies have struggled to gain traction. With the Non-Farm Payroll report on deck, the market faces a potential volatility catalyst at a technically sensitive level. A decisive weekly close above resistance would reinforce the bullish shift, while hesitation here could signal a period of consolidation within the February advance. Battle lines drawn on the USD short-term technical charts.

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US Dollar Index Price Chart – USD Daily

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

Technical Outlook: In last month’s US Dollar Short-term Outlook we noted that DXY was attempting to breakout of the January downtrend and that, “From a trading standpoint, losses should be limited to 96.88 IF price is heading higher on this stretch with a close above 97.97 needed to fuel the next major leg of the advance.” The Dollar broke through resistance into the start of the week / month with the advance extending more than 1.5% since the Sunday open.

The rally is testing resistance today at the 78.6% retracement of the November decline and the January high-day close at 99.36/38 with the bulls attempting to mark an outside-day reversal. The focus is on a reaction off this mark heading into tomorrow’s highly anticipated Non-Farm Payroll report. Daily momentum has reached the highest level since November and a weekly close above this pivot zone is needed to fuel the next leg of the USD advance. That said, the immediate advance may be vulnerable while below.

US Dollar Index Price Chart – USD 240min

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

Notes: A closer look at USD price action shows DXY trading within the confines of an ascending pitchfork extending off the February low. Initial support was tested earlier today at 98.55/68- a region defined by the 61.8% retracement of the November decline, the May low, and the August high-day close (HDC). Subsequent support is stacked just lower at the 200-day moving average (currently ~98.35) and is backed closely by the objective yearly open at 98.24. Note that the lower parallel converges on this threshold next week. Ultimately, a break below the monthly open at 97.87 would be needed to put the bears back in control here.

A topside breach above 98.38 would expose the yearly high registered on Tuesday at 99.68. Note that the upper parallel converges on this level into the close of the week and a breach / daily close above this slope is needed to mark uptrend resumption towards the 2024 low / low close at 100.16/35- look for a larger reaction there IF reached.

 

Bottom line: The US Dollar index has rallied into pivotal resistance at the January high-close ahead of major event risk tomorrow. From a trading standpoint, losses would need to be limited to 98.24 IF price is heading higher on this stretch with a close above 99.38 needed to fuel the next major leg higher in price.

Non-Farm Payrolls are on tap tomorrow and may spark increased volatility into the close of the week. With the Iranian war fueling a surge in oil prices, concerns are mounting that an increase in energy prices may bleed into the inflationary outlook. As such, a better-than-expected jobs report tomorrow could further push out expectations of future rate-cuts form the Fed and continue to support this rally in the Dollar. Stay nimble into the release and watch the weekly close for guidance here. Review my latest US Dollar Weekly Forecast for a closer look at the longer-term DXY technical trade levels. 

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Written by Michael Boutros, Senior Technical Strategist

Follow Michael on X @MBForex