The US dollar index $DXY has some extra pep in its step after posting three consecutive daily gains.
In fact, the past few days constitute its largest three-day gain since the index peaked in late September.
I think it’s safe to say the long-awaited USD bounce has arrived. The question now is whether it will turn into a sustained rally.
No one knows, of course. But these next two levels will help us prepare for an impactful dollar advance…
First, let’s zoom out…
The early 2017 high of 103.82 marks the first significant hurdle for the dollar index. Let’s call it 104.
If the DXY reclaims this key level, the conversation turns to the possibility of a failed breakdown. For now, it’s simply pulling back to retest a critical level of former resistance.
If and when DXY bounces back above 104, that brings us to the second hurdle…
That would be a key retracement level from last year’s parabolic advance at approximately 105 – a level that’s received plenty of attention since last spring.
It first acted as resistance in May and June. Then, it briefly held as support in mid-November following the final run-up last fall.
And just weeks later, the principle of polarity sprung into action as the 105 level turned back into resistance.
Bottom line: This level holds significant price memory from the past ten months and now represents a logical level of potential resistance.
Risks are to the upside for the dollar if DXY breaks back above 105. It’s that simple!
