The US Dollar Index (DXY) has looked weak since retesting 105.60 resistance earlier this month.
The DXY closed below its 103.50 yearly open on Monday, signaling further weakness.
However, the dollar index is approaching a massive confluence of support, with Wednesday’s FOMC looming.
If there’s one area that can trigger a significant bounce for DXY, it’s 102.60.
But before we get to that, let’s look at the incredibly well-defined channel that’s developed on the 1-hour time frame.
Since testing 105.00 resistance, the USD has trended lower within a very tight descending channel.
The lower portion of this channel intersects with 102.60 between Tuesday and Wednesday.
A breakout from the channel above could be telling, but 102.60 is much more influential.
So why is 102.60 the dollar level to watch?
The first reason it’s significant is its role as horizontal support and resistance since mid-January.
It served as resistance throughout January and flipped to support in February.
The second reason to watch the 102.60 region is that it’s the bottom of a larger 4-hour descending channel.
I discussed this pattern in the recent Weekly Forex Forecast.
The bottom of that channel intersects with the 102.60 horizontal level around Wednesday’s Fed rate decision and press conference at 2 pm and 2:30 pm EST, respectively.
Lastly, 102.60 is the golden pocket of the February to March rally.
The golden pocket refers to the area between the 61.8% Fibonacci retracement and the 65% level, which markets love to test and often reverse from.
Whether we see the DXY bounce from 102.60 later this week is unclear.
However, given the three reasons outlined above, dollar bulls will defend the area with all their might.
But remember that the 103.50 yearly open has flipped to resistance, so the DXY must reclaim that to open up higher levels like 104.12.
