US dollar (DXY) index technical analysis: more room to go?The US dollar has defied gravity this year, rising 15% so far, with the DXY index on an exponential upward trend since May 2021, owing to strong macroeconomic factors that continue to support the Federal Reserve's plan to keep raising interest rates aggressively.
From the DXY monthly chart, we can see that the long-term major trend is still well in place.
Fibonacci analysis from April 2008 lows to 2022 highs identifies 120.19 as the next level of extension (123.6%), which corresponds to the DXY's March 2002 highs. The latest upswing leg, which began in June 2021, is strikingly similar to the rise that followed the double-bottom pattern set in April 1995.
As the monthly RSI hovers around overbought levels, caution is warranted as price pullbacks have historically occurred whenever the oscillator has crossed this line.
As a result, if the DXY retraces and breaks support at 109.3 in the near term, we can expect a consolidation phase between 109.3 and 107.3 (corresponding to the 78.6% Fibonacci retracement level of 2022 low-high and the 50-day moving average). This scenario is conceivable, particularly if other significant central banks, like the BoE and the ECB, deliver outsized rate increases (at least 75 basis points) in the coming meetings.
However, it is unlikely that the DXY will break significantly below its 50-day moving average in the near future, as all attempts to do so this year have been met with a strong bullish response.
In a medium-long term view the absence of major macro catalysts that would undermine the dollar's strength, such as a dovish shift by the Federal Reserve, makes the scenario of a long-term bullish trend reversal unlikely at this time.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com
