US Dollar Technical Forecast: USD Poised for Breakout into FOMC

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

• US Dollar locked in six-week contractionary range below resistance
• USD range resolution to provide near-term direction- breakout risk builds into FOMC
• DXY Resistance 99.75, 99.58/83, 100.42 (key)- Support 96.94, 96.38 (key), 94.65/98

The US Dollar continued to coil this week, with DXY contracting for a sixth-consecutive week. The focus now turns to the FOMC interest rate decision on Wednesday as traders look for a catalyst to drive a breakout. A decisive move out of this range is likely to offer directional clarity into the close of the month and the battle lines are 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, “the focus is on a breakout of the 96.94-99.84 range for guidance here- ultimately, rallies should be limited to 101.65 IF USD is heading for a break lower with a close below 96.38 needed to mark downtrend resumption.” The range is preserved into mid-September with price continuing to contract below the 50% retracement of the August decline at 98.75. Looking for a breakout in the days ahead with the FOMC interest rate decision on tap next week.

Support rests with the 2021 swing high at 96.94 and is backed by the yearly lows at 96.38- note that the median-line of a multi-year pitchfork converges on this threshold and a break / weekly close below this slope would be needed to mark resumption of the broader downtrend. Subsequent support seen at the March 2020 low / 100% extension of the 2022 decline at 94.65/97 and the 2021 opening-range high at 93.44.

A topside breach / close above the 98.75 is needed to suggest a more significant low is in place / a larger recovery is underway with subsequent resistance seen at 99.58/83- a region defined by the 2023 low, the April low-week close (LWC) and the 61.8% retracement of the May decline. Broader bearish invalidation remains with the 2024 LWC at 100.42.

Bottom line: The U.S. Dollar has continued to trade within a contractionary range just below resistance for the past six-weeks and we’re looking for a breakout of the September opening-range for guidance in the days ahead. From at trading standpoint, losses would need to be limited to 96.94 IF the index is heading for a larger recovery here with a close above 98.75 needed to fuel the next leg higher.

Keep in mind the Federal Reserve interest rate decision is on tap Wednesday with markets widely anticipating a 25 basis pointcut from the central bank. The focus will be on the updated Summary of Economic Projections as they pertain to growth, inflation & employment with the interest rate dot plot likely to fuel the bulk of the volatility. Stay nimble into the release and watch the weekly closes for guidance. I’ll publish an updated US Dollar Short-term Outlook once we get further clarity on the near-term DXY technical trade levels.

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--- Written by Michael Boutros, Sr Technical Strategist

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