Where next for the Dollar Index (DXY)?

By | February 13, 2017
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The DXY has recovered from the 2nd Feb low of 99.23 to currently sit at 100.85, and from the look of the daily charts it could be building the momentum for a run back above 101.00, where the next significant resistance levels would be at 102.05 (61.8% of 103.83/99.23), at the 11 Jan high (102.95) and at the trend/3 Jan high at 103.82. Above there looks unlikely in the near term but the next (minor) target would be at around 104.00/10, above which there is not a whole lot to stop it heading to 105.50 and even to 107.31 (Dec 2002 high).

Although the dailies point higher – and buying dips appears to be the plan this week – the weekly and daily charts look less certain on the topside, so some caution is warranted and I would be leaving a relatively tight stop on long positions at just below 100.00 (100 SDMA). The weeklies still hint at lower levels ahead, at some stage, and if 100.00 is taken out we could see a quick fall back towards the recent 99.23 low. That should again be reasonable support, but a break would then suggest a run back towards the 200 SDMA (97.70) and the rising trend support, currently at 97.10.

Overall, it looks set to remain choppy, with a mild, near term upside bias. If this turns out to be the case, look for the growing potential of a head/shoulder top, which if it came about would have rather bearish implications for the dollar, with an objective at 94.75. That is far too premature to look at this stage but may be worth watching down the track.
How to trade it? Right now, buying dips towards 100.00, with a tight SL at around 99.80 seems to be the plan. If we see the DXY back above 102.00, selling into strength towards 102.50/103.00 would seem to be a plan, in looking for another run back towards 100.00 and possibly lower, but with a SL placed on short positions tight above the trend high of 103.82.