One of the strongest trends across FX markets this year is in question as the U.S. Dollar continues to trade higher. In the first three quarters of 2017, the Dollar faced a drawdown that saw as much as -12.33% of its value erased. After setting a fresh low in early-September, the Greenback began to move-higher into the close of Q3, but in the first week of the quarter, an abysmal NFP print combined with a big zone of resistance helped to punch the Dollar lower. That bearish action lasted for most of last week, and on Friday when we got CPI for the month of September showing 2.2% inflation in the U.S., bulls eventually returned to bid prices higher. At this stage, it seems as though a re-test of this resistance zone will soon be in the cards. The bigger question will be how sellers respond and whether or not they allow this zone of resistance to become breached.

U.S. Dollar via ‘DXY’ Four-Hour: Fast Approaching Key Resistance Zone

Chart prepared by James Stanley

On the above chart, we’ve identified those inflection points of NFP (in purple) and CPI (in Green). The zone of resistance that we’re referring to consists of the 38.2% Fibonacci retracement of the 2014-2017 major move in DXY combined with a group of swing-highs that showed in August around 94.08.

If we do see resistance come in short of the prior high that had printed earlier in October at 94.27, USD weakness could be attractive under the presumption that the bigger picture bearish trend will remain in order. But – if we do get a break of that resistance zone, we’ll be looking at fresh three month highs in a market that was heavily short and getting further squeezed. That could lead to additional upside as resistance levels at 95, 95.50, 96.30 become interesting as topside targets.

U.S. Dollar via ‘DXY’ Daily: 2017 Down-Trend Test with Additional Resistance Applied

Chart prepared by James Stanley

For those looking for USD-strength plays, there are a couple of markets that are interesting. While many are looking to fade off the Euro or to get short on the British Pound ahead of a potential rate hike, there are economies in Japan and Australia that won’t likely be looking at interest rate hikes or tighter policy options anytime soon. This can provide for a bit more of a softened backdrop for those looking at USD-strength plays, as those currencies won’t have to contend with the prospect of tighter policy options, at least to the degree of what’s being seen around Europe.