The US Dollar rallied more than 0.4% this week with DXY marking the second consecutive weekly advance. The rally takes the index nearly 2% off the monthly lows with the rally now eyeing initial resistance hurdles just higher.
These are the updated technical targets and invalidation levels that matter on the US Dollar Index (DXY) weekly price chart. Review my latest Strategy Webinar for an in-depth breakdown of this Dollar trade setups and more.
In last month’s US Dollar Weekly Price Outlook noted that DXY had, “broken below a multi-week consolidation / the May opening-range lows and keeps the focus lower heading into June.”
The index sold-off more than 2% into the open of the month before rebounding just pips from the 50% retracement of the 2018 advance at 95.62 (low registered at 95.72). Note that the index failed to close below yearly-open support at 96.50 with weekly momentum holding above the 40-threshold.
The recovery is poised to mark its second consecutive weekly advance with the rebound taking DXY back towards the 61.8% Fibonacci retracement of the yearly range at 97.83- Look for initial resistance there.
Ultimately, the near-term rally remains vulnerable while below the 38.2% retracement of the March decline at 98.50 with a break of the lows exposing subsequent support objectives at the 2019 low at 95.03 and the 61.8% retracement / 2016 low-week close at 93.88/92 (critical).
The strategy is gaining in popularity as two trends cause the curve to steepen. With short-end yields anchored by near-zero policy rates in major economies, Wall Street banks are arguing that a rebound in global growth paid for with new bond supply will send longer-dated yields climbing.
Whatever the shape of recovery, investors are positioning for an improvement even as the threat of a second wave of infections lingers and policy makers warn that uncertainties persist.
“There’s a realization that shutting down the economy entirely is just not feasible anymore and on that basis, there’s less reason for bond yields to head substantially lower,” said Prashant Newnaha, senior strategist at TD Securities in Singapore. “There’s also a lot of debt supply coming to hit the markets over the next couple of months.”