US Dollar Technical Forecast: USD Three-Week Rally Hits Resistance- Next Leg at Stake

US Dollar Index Technical Forecast: USD Weekly Trade Levels (DXY)

• US Dollar marks a third consecutive weekly advance, with the rebound extending nearly 1.8% off the December lows
•  DXY closes the week at key retracement zone- inflection risk builds
• USD rebound remains viable while above near-term support, but a sustained break above resistance is needed to suggest a more significant low is in place
• Resistance 99.38, 100.16/42 (key), 101.55- Support 98.24, 97.65/80 (key), 96.98

The US Dollar Index has extended the Christmas rally with a three-week advance carrying DXY into Fibonacci resistance- an important test for the recovery. The advance has recovered a meaningful portion of the November decline, and price action at this level will be critical in determining whether a more durable low is taking shape or if the rally stalls into consolidation. While the near-term structure remains constructive, the outlook hinges on how the Dollar responds here, and a sustained break is needed to confirm continuation of the late-December advance. Battle lines drawn on the DXY weekly technical chart.

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US Dollar Price Chart – USD Weekly (DXY)

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

Technical Outlook: In last month’s US Dollar Technical Forecast we noted that DXY was trading just above support at, “the 38.2% retracement of the advance off the yearly low at 98.80. A break / weekly close below this threshold would threaten another bout of accelerated losses with the next major technical consideration seen at the 2025 low-week close (LWC) and the 61.8% retracement at 97.65/81- look for a larger reaction there IF reached.” The index broke lower the following day, with DXY plunging more than 2.6% off the November highs to register an intraday low at 97.75 on Christmas Eve.

The subsequent rebound has now extended nearly 1.8% off those lows with DXY closing the week at the 61.8% retracement of the November decline at 98.38. The risk rises for possible inflection off this mark in the days ahead with a breach / weekly close above needed to suggest a more significant low is in place and fuel the next leg of the recovery. The next major technical consideration is a pivotal confluence zone at 100.16/42- a region defined by the 2024 swing low, the August high, the November high-week close, and the 2024 LWC. Look for a larger reaction there IF reached.

Initial weekly support rests the objective yearly open at 98.24. Note that basic trendline support extending off the 2025 lows converges on this threshold next week and keeps the outlook tilted to the topside while above this slope. Ultimately, a break / close below 97.65 would be needed to mark resumption of the broader downtrend with subsequent support seen at the 2025 low-close at 96.99 and the 2025 swing low at 96.22.

 

Bottom line: U.S. Dollar rebound is testing initial resistance, and the focus is on a reaction off this mark next week. From a trading standpoint, losses should be limited to 98.24 IF the index is heading higher on this stretch with a close above 99.38 needed to fuel the next leg of the recovery.

Keep in mind the 56^th annual World Economic Forum convenes in Davos, Switzerland next week with President Trump slated to speak on Wednesday. The November read on Personal Consumption Expenditures, the Fed’s preferred inflationary gauge, is slated for Thursday. On the back of this week’s better-than-expected CPI print, the data will be critical in determining the timing of the central bank’s next rate cut. Markets are currently pricing a 61% probability for the first rate cut of the year to be at the June decision, and a slower pace of price growth has the potential to bring forward those expectations to the detriment of USD.

Markets will be closed on Monday in observance of Martin Luther King Jr. Day - stay nimble into the open and watch the weekly closes here for guidance. Review my latest US Dollar Short-term Outlook for a closer look at the near-term DXY technical trade levels.

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--- Written by Michael Boutros, Senior Technical Strategist

Follow Michael on X @MBForex