US Dollar Technical Outlook: Slide Showing Signs of Fatigue?

US Dollar, EUR/USD, USD/JPY, GBP/USD, AUD/USD – Technical Outlook:

• USD downtrend remains intact.
• However, the slide appears to be losing steam.
• What is the outlook on key currency pairs and the signposts to watch?

USD, US DOLLAR, DXY INDEX TECHNICAL FORECAST – NEUTRAL

The US dollar’s broad decline remains intact, but the slide could slow or even pause as it approaches key support area across a range of currencies.

Momentum remains down on higher timeframe charts of the US dollar index (the DXY Index), including the weekly charts, as shown by the Moving Average Convergence Divergence (MACD) Indicator, a measure of trend and momentum. This is occurring just as the DXY Index is approaching fairly strong cushion area, including the 89-week moving average (WMA), roughly around the June 2022 low of 101.30. As the Weekly chart shows, the 89-WMA has provided a floor several times in 2019 and 2020, so some sort of a pause/consolidation wouldn’t be surprising. However, for the pause to be meaningful, the index needs to break above immediate resistance at last week’s high of 105.60. Until then, the directional bias remains down for the greenback.

DXY Index Weekly Chart

Chart Created Using TradingView

EUR/USD TECHNICAL FORECAST – NEUTRAL

EUR/USD hit a nine-month high on Thursday and there is no sign of reversal of the short-term uptrend. Nevertheless, a negative divergence (declining 14-day Relative Strength Index associated with rising price) on the daily charts indicates that the rally is showing signs of fatigue. The divergence comes as the single currency is running into stiff resistance at the May 2022 high of 1.0786, raising the risk of a pause/minor retreat.

Any retreat could push it back toward immediate support at last week’s low of 1.0482. Only a break below 1.0482 would confirm that the upward pressure had faded, which could push EUR/USD toward the 200-day moving average (now at 1.0390).

EUR/USD Daily Chart

Chart Created Using TradingView

USD/JPY TECHNICAL FORECAST – NEUTRAL

The fall to a 6-1/2-month low on Thursday confirms that downward momentum in USD/JPY remains intact for now. However, beyond the immediate term, the chances of a pause in the decline are growing. That’s because while the broader trend remains down, the losses in recent weeks have occurred on slower momentum. That is, fresh price lows haven’t been accompanied by fresh lows in momentum, suggesting that the slide is losing steam (see Daily chart). This comes as USD/JPY is approaching quite a strong support area, including, the May 2022 low of 126.30.

USD/JPY Daily Chart

Chart Created Using TradingView

GBP/USD TECHNICAL FORECAST – NEUTRAL

In recent weeks, GBP/USD has struggled to rise past a converged ceiling on the 200-day moving average, coinciding with the August 2022 high of 1.2295. Given that the Plus Directional Movement Index (DMI) and Minus DMI are below 25, range conditions could continue in the short term. The upper end of the range is defined by the December high of 1.2445, while the lower end of the range is set by last week’s low of 1.1840.

GBP/USD Daily Chart

Chart Created Using TradingView

AUD/USD TECHNICAL FORECAST – NEUTRAL

AUD/USD is approaching a tough barrier: the 89-week moving average (WMA), near the August 2022 high of 0.7135. The 14-week Relative Strength Index (RSI) is near the top end of the recent range, which has restricted rallies in the recent past. For instance, AUD/USD turned lower in April 2022 from a similar setup, including resistance at a previous high and the 89-WMA, coupled with RSI at 60. While this doesn’t necessarily imply an imminent reversal, from a risk:reward point of view, it might be prudent to stay Neutral.

AUD/USD Weekly Chart

Chart Created Using TradingView

— Written by Manish Jaradi, Strategist for DailyFX.com