US Dollar Short-term Outlook: USD Breakout Targets Next Major Resistance
The US Dollar breakout is gaining momentum as traders turn to PCE for the next major catalyst. Battle lines drawn on the DXY technical charts.
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US Dollar Index Technical Outlook: USD Short-term Trade Levels
- The US Dollar rebound from uptrend support with DXY breaking to a fresh yearly high.
- Rally now approaching first major technical hurdle- risk for inflection ahead.
- A sustained move above resistance would signal trend resumption while exhaustion here could fuel a re-test of uptrend support.
- Thursday's PCE inflation report could provide the catalyst for the next leg of the move.
- DXY Resistance 101.77/92 (key), 102.72, 102.95/99- Support 101.145, 100.64/77 (key), 100.15/35
The US Dollar has broken higher after rebounding from uptrend support, with the advance now extending to fresh thirteen-month highs. Momentum has shifted firmly in favor of the bulls, but the rally is approaching a major resistance zone where the next reaction could prove pivotal. With Thursday’s PCE inflation report on tap, traders are watching whether the data can fuel another leg higher or trigger a pullback within the broader advance. Battle lines drawn on the DXY short-term technical charts.
Review my latest Weekly Strategy Webinar for an in-depth breakdown of this US Dollar technical setup and more. Join live on Monday’s at 8:30am EST.
US Dollar Index Price Chart – USD Daily
Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView
Technical Outlook: In my last US Dollar Short-term Outlook we noted that DXY was trading just below pivotal resistance and that, “From a trading standpoint, losses would need to be limited to the lower parallel IF the index is heading higher on this stretch with a close above 100.35 needed to fuel the next major leg of the rally.” The index pulled back into slope support the following week before reversing sharply higher on the heels of the Fed rate decision. The rally has now extended more than 2.5% off the monthly lows with a breakout of uptrend resistance today threatening the next leg of the U.S. Dollar advance. Note that daily RSI has now broken into overbought territory for the first time since March and keep momentum in favor of the bulls for now.
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 continuing to trade within the confines of an ascending pitchfork extending off the April / May lows. A break of the 75% parallel today is within striking distance of confluent resistance at the September high-day close (HDC) / high at 101.77/92. Look for a larger reaction there IF reached with a breach / daily close above needed to fuel the next major leg of the U.S. Dollar advance. Subsequent resistance objectives are eyed at the 100% extension of the January advance at 102.72 and the 2016 high close / 2020 high at 102.95/99.
Initial support now rests with the 38.2% retracement of the 2025 decline at 101.14 and is backed by the March high and the 1.618% extension at 100.65/77. Weakness below this threshold would threaten a larger pullback within the May uptrend with broader bullish invalidation now raised to the 2024 low / low close at 100.16/35.
Bottom line: The U.S. Dollar breakout is now approaching pivotal resistance at fresh thirteen-month highs. From a trading standpoint, look to reduce portions of long-exposure / raise protective stops on a stretch towards 101.77/92- losses would need to be limited to 100.64 IF price the index is heading higher on this move. Ultimately, the bulls would need to secure a close above 102 to fuel the next major leg of the rally.
The focus now turns to Thursday's U.S. Personal Consumption Expenditures (PCE) report, the Federal Reserve's preferred gauge of inflation. Following Chair Warsh's recent commitment to returning inflation to the central bank's 2% objective, the release could prove pivotal in shaping expectations for the policy path ahead. A stronger-than-expected reading would likely reinforce the case for further policy tightening in the months ahead. Fed Fund Futures are currently pricing in a 70% probability of a 25-basis-point hike at the September FOMC meeting and shifts in the interest rate outlook are likely to drive the Dollar into the close of the week- stay nimble into the release and watch the weekly close for guidance. Review my latest US Dollar Weekly Forecast for a closer look at the longer-term DXY technical trade levels.
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Active Short-term Technical Charts
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- Japanese Yen Short-term Outlook: USD/JPY Rally Stalls at Intervention Zone
- Swiss Franc Short-term Outlook: USD/CHF Breakout Faces First Major Test
Written by Michael Boutros, Senior Technical Strategist
Follow Michael on X @MBForex
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