Daily Market Recap – DXY Dollar consolidates along an ascending triangle

The dollar has been stalling just below the 97 mark for nearly a month and looks set to remain within range despite the Fed's hawkish tone last week. The DXY is holding below its yearly high of 96.88 points last month, with growing health uncertainties in the US likely offsetting the Fed's hawkish rhetoric.

Indeed, uncertainties are rising across the Atlantic due to the Omicron variant. The spike in infections is beginning to force some US states to put some sanitary restrictions back in place. Although they are still minimal compared to those already in place in Europe, traders fear that the restrictions will become even tighter, which would weaken U.S. growth and could therefore delay the Fed's normalization plans.

Health developments in Europe and the U.S. will be the main catalyst for the dollar in the near term. A tightening of restrictions in Europe would benefit the dollar and vice versa.

The markets are likely to remain flat in the coming sessions as the few market participants present will have little news to get their teeth into. Only the housing price index and the US trade balance are expected.

In terms of technical analysis, the dollar index DXY has been marking time within an ascending triangle since late November. The exit from this triangle will indicate the next move. A breakout from the top would pave the way for a continuation of the underlying uptrend while a breakout from the bottom would pave the way for a retracement. The bullish oblique that runs through the June and October lows (in black) at around 95 points would then be in the crosshairs for short positions.

 (Chart Source: Tradingview 26.12.2021)

In addition, we can notice a tightening of the Bollinger Bands, which indicates a decrease in volatility and usually precedes a new directional market trend. Like what we experienced in early November, the DXY's breakout from its Bollinger Bands could start a new rally. Traders may look to position themselves for the breakout with a move above the 20-period moving average a signal to go long on the DXY for a target of around 97.

Support & Resistance Levels:

R3       98.35

R2       97.80

R1       96.88

S1        95.76

S2        95.00

S3        94.62

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.