Whether expecting a break lower, or a rally higher, US dollar index futures are trading right near support between 96.30 and 96.60. A break lower lends credibility to the argument the USD is in for a much deeper retracement, after running from 78.93 to a high of 100.785 in the last year.
March 18 marked the start of the current correction. On that day the price fell from just above 100 to just below 95. Since then the price has moved between 100.27 and 96.315, creating two smaller triangles within a larger one.
Figure 1. June US Dollar Index Futures (DX) - 8 Hour Chart
The March 18 sell off was large enough to consider a short-term downtrend in effect. Those that are bearish will be watching for a break below the 96.315 low. Alternatively, if the price pushes higher off support, sellers will also be watching the 97.50 region. If the price consolidates there, and then breaks lower, the short-term descending trendline will have held, and short-position traders will be looking for a potential breakout lower (on the next attempt at support).
If the US dollar breaks through support (with conviction; be aware of false breakouts), the longer-term target is 92.50.
Those that are bullish are viewing the current support area as a bargain. This is the lowest the US dollar has traded in a month, and the area has held up on prior tests within that month. If the price consolidates in this region (showing selling has slowed) and then moves above the high of that consolidation, expect a sharp rally. A similar situation developed on April 6.
Those that get long shouldn't be greedy. There is potential resistance near 97.50, followed by 99.50. If the price moves above the latter resistance area--breaking the large triangle to the upside--the correction is likely over, and the long-term uptrend is resuming.