The US dollar index (DXY) is coiling for a move later this week.
Most retail markets are closed today in observance of Christmas day. However, the DXY is the market to watch as we head into the new year.
We have a macro support area that will be a key driver in 2023 and an intraday terminal pattern that will be significant this week.
The US dollar index is a critical component of any forex trader’s watch list as it offers clues for the major currency pairs, especially EURUSD.
First, let’s look at the macro support between 102 and 103.
Notice how DXY treated the 102 to 103 region as resistance in late 2016/early 2017 and March 2020.
The USD index broke through that area earlier this year, so it should now serve as support.
We’re already seeing signs of that this month, which could be a substantial development as we head into 2023.
However, we haven’t seen a full retest of this region yet, and the short-term downtrend remains intact.
So we turn our attention to the intraday charts, specifically the 4-hour time frame below.
Note how the DXY has carved a triangle pattern in December, with support near 104 and resistance at 104.50.
The index is approaching the apex of this terminal pattern, which means it must make a move later this week.
That could be significant given that risk assets like stocks tend to move inversely to DXY. The same goes for crypto.
And we know that the euro is the most heavily weighted fiat within the DXY index, so a break higher or lower from this triangle will impact the EURUSD and other major currency pairs.
So whether you trade stock indices, forex, or even crypto, the 4-hour DXY triangle below is one to watch.
A 4-hour close below 104 would open up the 103.40 low and potentially the 102.20 macro support.
Alternatively, a close above 104.50 would expose the 105.60 pivot and potentially the 107.20 swing high.
