US Dollar Outlook: DXY Holds Support as FX Reversal Risks Build

The US dollar has absorbed considerable selling pressure without delivering the decisive breakdown bears might have expected. With the Dollar Index holding around several important technical levels, the risk of a near-term rebound deserves attention.

That does not necessarily signal the beginning of a major dollar rally. But price action across DXY and several major currency pairs suggests traders may need to distinguish between the broader trend and shorter-term reversal risks.

In the video below, Matt Simpson examines the US Dollar Index alongside USD/JPY, USD/CAD, EUR/USD, GBP/USD, AUD/USD and NZD/USD to identify where those risks appear most pronounced.

View related analysis:

US Dollar Index Tests a Major Support Zone

The Dollar Index has broken away from its previous trendline structure, but that has not translated into a clean break of support.

DXY is trading around a cluster of technically significant levels, including its 200-day moving averages, monthly pivot support and a high-volume area dating back to May. Recent daily candles also suggest downside momentum may be fading.

Whether that develops into a meaningful rebound remains to be seen, particularly with a relatively light US economic calendar providing few obvious catalysts for a large move.

USD/JPY, EUR/USD and GBP/USD Approach Decision Points

USD/JPY stands out following the recent intervention-driven volatility in the yen. Price action has since stabilised, leaving traders to weigh another push higher against the risk of authorities becoming uncomfortable with renewed yen weakness.

EUR/USD remains constructive over the broader term, yet the pair has encountered technical resistance and printed a potential reversal candle.

GBP/USD is also testing an important area after failing to clear its July high, with UK employment data adding another potential source of volatility.

AUD/USD and NZD/USD Show Signs of Exhaustion

AUD/USD has continued to grind higher as relative interest-rate expectations favour the Australian dollar, taking the pair above 71 cents. Yet recent candles suggest bullish momentum is becoming less convincing as resistance approaches.

NZD/USD is also showing signs of potential mean reversion after struggling to extend its previous advance.

These setups do not necessarily undermine the broader trends. Instead, they raise the possibility that some of the strongest recent FX moves are due a pause or retracement.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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