DXY Is Getting Close To Support

DXY, Weekly

US Dollar Index (DXY) represents a basket of currencies in which the US dollar is valued. These include major currencies with different weights: EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%). With euro having the highest weighting analysis made on DXY will have the greatest indication for EURUSD trading.
Since March this year momentum indicators have been moving lower reflecting the fact that price has not been making new higher highs anymore. Until recently Stochastics and RSI have been moving above the overbought threshold but now are pointing lower and have moved closer to neutral values. In a price chart that means the latest price action is taking closer to the middle of the recent range. DXY has been correcting lower this week and is now close to the 50% Fibonacci retracement level. This ties up with the indication from the oscillators. Price is also approaching an accelerated trendline support but has created a lower high which suggests that price could be moving sideways over the coming weeks.



DXY, Daily

Both Stochastics and RSI are close to oversold levels with the latter attempting to tick higher at the time of writing. Price has reached a pivot candle from April 6th and is fairly close to a rising trendline support. This suggests that the downside is getting limited and we should be looking for buy signals for the dollar at levels at or below the current price. Nearest support and resistance levels are 97.46 and 99.46 which also coincides with the upper Bollinger Bands. Should the 97.46 support not hold the DXY the next important support level can be identified in the 4h chart at 97. The 50 day MA is currently in the region as well with a value of 97.08. This increases the validity of the level.



DXY, 240

As DXY has been trending down over the last three days there has also been some wedging in the price. This suggests that there is some resistance for dollar moving lower, especially since price came to the low of 98.07 yesterday. At the moment the 61.8% Fibonacci resistance level has been acting as a resistance for rallies today. Price is moving closer to 97.46 support level which it has already almost touched once and bounced higher. Stochastics, RSI and MFI are oversold which supports the view that this market is near to buy levels. If the 97.46 doesn’t hold then the next support level at 97 should come into play but I am interested in price action based buy signals even between the levels.

Conclusion

In the longer term picture it is clear that the Fed speak turning dovish in March has taken steam out of the DXY rally and the index has been moving sideways.  Price has created a lower high which suggests weakness and that DXY could be moving sideways over the coming weeks. But in a shorter term picture DXY is close to support levels and we should therefore be looking for buy signals the dollar. This obviously means looking for sell signals in markets like AUDUSD (close to a resistance), NZDUSD (also at resistance). At the same time USDJPY is at support. Should the price action confirm my analysis this could be a time to favour USD over other currencies. Later on today we will have the CPI numbers from US and this could cause some action should there be a strong deviation from analysis expectations.