At this point of fundamental economic events and market correlation, we have to talk first about US treasury yields when we start an article about DXY US dollar index possible upside continuation.
As you have noticed in many USD pairs pullback has reached the critical level and at the end of the week USD and DXY index started to bounce from key support. The bounce came after the 10Y US treasury reacted from a 2.380 support and monthly pivot as it can be seen on the weekly chart below. 10Y yields are now testing important 2.5 upside resistance and a possible USD upside continuation could depend on the break of this level and a retest of 2.63 level.
From the technical analysis perspective, this is strong bounce and is supported by key levels. DXY also bounced from a perfect uptrend support 99.80 level, and what is more important it managed to stay weekly above 100.40 previously broken multi-month consolidation top, forming a hammer candle.
Keeping in mind its connection with 10YÂ yields we see an upside potential for a retest of a falling trend line and upside resistance zone 101.30-101.700. You can see this positioning on the daily chart below. DXY is supported here by 100 SMA also, 99.50 level.
To conclude, despite the pullback from the start of the year, DXY index that is a market indicator of the USD currency pair basket has the upside potential. However, it needs to overcome 101.30-101.70 zone with a clear daily break for the confirmation of this view. It is to expect that the test of this zone would happen next week so adjust your trading strategy according to that.
Happy trading! (click on the chart to enlarge it)
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