Original article by Matt Weller, CFA, CMT – FOREX.com Analyst
Title: DXY, USD/CAD, USD/JPY: Key Resistance Levels in Sight
As market activity picks up this week, the US Dollar is showing renewed strength against major global currencies. Led by signs of resilient economic growth in the United States and speculation over future Federal Reserve policy, the greenback is testing some important resistance levels. In this analysis, we look closely at the U.S. Dollar Index (DXY), as well as the USD/CAD and USD/JPY pairs, with technical and fundamental perspectives guiding the outlook.
DXY: U.S. Dollar Index Testing Key Resistance
The DXY, a measure of the dollar’s value relative to a basket of foreign currencies, has pushed to the top of its multi-month range. As we head into the mid-year economic transition, several catalysts are prompting increased demand for the USD.
Reasons for USD Strength:
– Persistent upside surprises in U.S. economic data
– Market shifting expectations for Federal Reserve rate cuts
– Volatility in foreign exchange markets as investors seek safer assets
– Rising U.S. Treasury yields attracting capital inflows
On the technical front, the DXY is threatening a breakout above a key resistance level near the 105.10 mark. This level has served as a ceiling for the index since late April. Should the DXY sustain a close above this level, we may see a breakout rally toward the March high near 105.90 or even higher.
Technical Indicators to Watch:
– Relative Strength Index (RSI): Currently rising, but not yet at overbought levels
– 50-day and 200-day Moving Averages: Pointing upward, reinforcing medium-term bullish trend
– Bullish crossover evident on MACD, signaling upward momentum
From a macroeconomic standpoint, continued resilience in employment, consumer spending, and inflation support the dollar’s climb. As other global central banks move more decisively toward interest rate cuts, the Fed’s more cautious stance helps maintain the USD’s appeal.
USD/CAD: Resistance Looms with Diverging Monetary Policy Paths
USD/CAD has tracked higher alongside the broad U.S. dollar bounce, benefiting further from weakening sentiment in the Canadian dollar. This divergence is shaped by two primary factors: monetary policy gaps between the Federal Reserve and the Bank of Canada (BoC), and softening commodity prices, particularly oil.
Key Drivers of USD/CAD Movement:
– BoC signaled a potential June interest rate cut, with some policymakers advocating for policy easing to support economic growth
– Fed continues its patient approach, reiterating the need for sustained inflation moderation before initiating rate cuts
– Canadian economic data has shown signs of slackening, with job market stabilization and deceleration in GDP growth
– Oil prices, a key driver for CAD as Canada is a major crude exporter, have pulled back from recent highs
Technically, USD/CAD is trading near its multi-month resistance zone around 1.3700–1.3740. A break above this range may open the door toward retesting November highs around 1.3900.
Technical Analysis:
– RSI approaching overbought territory — a breakout could be followed by short-term consolidation
– Price action holding securely above the 50-day moving average, which has offered continued support since the April low
– Longer-term moving averages also remain bullishly aligned
Traders should consider headline risk from key U.S. and Canadian economic reports. For instance, any material divergence in employment numbers or inflation data could provide the catalyst for a breakout or reversal. Additionally, energy prices remain an important variable for Loonie strength or weakness.
USD/JPY: Resistance Ahead as Yen Weakens Further
USD/JPY’s upward momentum has intensified, with the pair reaching its highest level since 1990. Currency traders remain focused on the Bank of Japan’s (BoJ) hesitancy in tightening policy at the same pace
Explore this further here: USD/JPY trading.