US DOLLAR TECHNICAL OUTLOOK:

• The U.S. dollar, as measured by the DXY index, fell during the first three months of the year, with prices currently challenging a major technical support zone
• Heading into the second quarter, the risk of a breakdown has increased
• Download our full quarterly US dollar forecast for a more comprehensive view of the outlook

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The U.S. dollar, as measured by the DXY index, was on a roller coaster ride during the first three months of the year. Early in February, the index fell below the 101.00 and hit its weakest mark in about 10 months, but then managed to recover rapidly, reaching its best level since November 2022 in a reprieve that proved to be short-lived. The tug of war between bulls and bears was voracious, with the latter group eventually prevailing.

Confluence Resistance Halts Bulls

The February-March rally stalled at confluence resistance, just a touch below the psychological 106.00 handle. In this zone, the 38.2% Fibonacci retracement of the September 2022/February 2023 slump converges with a medium-term descending trendline that has been guiding the greenback’s decline for the past six months.

After failing to clear the 106.00 technical ceiling, the U.S. dollar index pivoted lower as upside momentum vanished as quickly as it appeared, allowing bears to regain decisive control of the market. With downside pressure accelerating in late March, prices have dropped to a key support around the 102.00 level, which corresponds to the Fibonacci retracement of the January 2021/September 2022 advance.

Breakdown on the Horizon

At the time of writing, DXY continues to trade above the 102.00 handle, but a breakdown seems in the offing. Should this scenario play out, sellers could launch an attack on February’s low at 100.82. Below that, the next floor rests at 99.00, the 68.2% Fib retracement of the 2021/2022 move discussed before. On further weakness, subsequent technical supports are seen at 97.60 and 94.70.

In the event of a bullish reversal, which at this point seems unlikely given the growing negative sentiment around the greenback, prices need to overcome resistance ranging from 104.00 to 104.65 to be sure that the medium-term downward correction is completely over. If the 104.00/104.65 area is taken out, upside impetus could pick up pace, paving the way for a rally toward 106.17, followed by 107.85.

US Dollar (DXY) Chart – Weekly Timeframe

Source: TradingView, Prepared by Diego Colman

This article focuses exclusively on the U.S. dollar outlook from a technical analysis standpoint. If you would like to learn more about the fundamental forecast for the U.S. currency, click the link below to download DailyFX’s full and complete USD quarterly guide. It’s free!