When it comes to foreign exchange markets, it has been the US dollar that has reigned supreme. Last week, the US dollar index (DXY) capped of its fourth consecutive week of gains, rising by 2.10%. In level terms, the pair quickly breached the March 2020 high of 102.992 and had a brief dalliance at 103.928, just above the January 2017 high of 103.820, before closing at 103.212. This positive momentum has carried into this week as the index looks set to retest the 103.820 level and traders eye further upside.
At the time of writing, daily price action has formed what could be construed as an ascending triangle pattern, which would suggest a continuation of the current uptrend. Furthermore, despite the daily RSI being above 70 – the level which traditionally demarcates overbought conditions – sings of divergence that would allude to a potential reversal are absent. A sustained break above 103.820, would leave every opportunity for the index to rise above the 105.40-60 region. The latter acted as prior support in 2020 and could easily prove areas of resistance.
That said, the 103.820 level remains a key area of resistance and the DXY’s rise over recent week has been aggressive. There is every risk the DXY could trade sideways within a big range from these levels. As a result, buyers may be tempted to wait for better levels before carrying the DXY higher. Based on prior congestion zones, 100 to 101, could be key buy zones if that does prove to be the case. Either way, it will likely take a break below 99.818 to really convince market participants that the DXY has shifted from its current uptrend into a downtrend.
