The US Dollar Index experienced a significant rally last week after Friday’s release of better-than-expected non-farm payroll data. This surprising report prompted increased demand for the US dollar and resulted in a 0.5% gain for the index. The daily chart revealed that resistance at 103.62, which had been tested multiple times since January 17th, was successfully broken, turning this level into support. As a result, the path was cleared for the index to target nearby resistance levels at 104.15 and 105.04.
Notably, the level of 104.15 has a strong historical significance as both support and resistance since mid-2023. Therefore, if the index reaches this level, we can anticipate some pushback and a potential retest of the breached resistance level at 103.62. Additionally, the Relative Strength Index (RSI) suggests a bullish scenario for the upcoming week, with the momentum indicator rebounding from its 50.00 centerline and an early uptrend forming since the December 2023 low of 100.62.
When examining the monthly timeframe, the longer-term trend of the US Dollar Index is evident. Despite limited movement since early 2023, the trend remains bullish, with momentum hovering above the 50.00 mark on the RSI. It is crucial to monitor two important structures in the coming weeks. Firstly, the December 2023 low at 99.67 serves as potential support, backed up by a nearby Fibonacci cluster around 98.72. Secondly, the October 2023 peak at 107.35 poses as a possible resistance level for the index. Outside of these key levels, support at 109.33 and resistance at 99.67 are also noteworthy.
From a technical perspective, two possible scenarios emerge for the bulls in the upcoming week. First, if the US Dollar Index manages to overcome the resistance at 104.15 on the daily chart, it will provide a clear signal for breakout buyers to target the next significant resistance at 105.04. Second, given the historical significance of the 104.15 level, a rejection from this point could attract dip-buyers, especially if there is a retest of the recently breached daily resistance-now-turned support level at 103.62. This scenario suggests that the bulls could potentially regain control.
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