• US dollar index faces pressure near one-year high
• Flag formation could lead to bullish continuation

The US Dollar Index (DXY) recently reached its November 2023 peak of 106.95 before edging slightly lower. Despite this pullback, there are no clear indications that the uptrend has peaked.

The index, which tracks the US dollar’s value against six major currencies, is currently following a downward-sloping flag pattern. This formation often suggests a brief pause before a potential bullish breakout. However, caution is warranted, as the RSI is still hanging near its 70 overbought level and the stochastic oscillator has already changed course to the downside, suggesting weakening momentum.

If the index manages to break above the channel at 106.45, it could run straight to the 50% Fibonacci retracement level of the 2022-2023 downtrend, which halted the rally last week near 106.90. A successful penetration of this area could strengthen bullish sentiment, driving the price toward the target at 107.70, a resistance level formed in November 2022. Beyond that, the 61.8% Fibonacci retracement of 108.75 could next come into play.

Should the index fail to break higher and instead retreat within the flag pattern, a drop below the 106.00 mark could signal further downside risk. In this case, immediate support could develop near 105.85 and then somewhere between 105.35 and 105.00, where both the ascending trendline from September's low and the 20-day Simple Moving Average (SMA) converge.

In summary, while the US dollar index is currently trading within a short falling channel, it hasn't surrendered to bearish pressure yet. A decisive close above 106.45 could signal renewed bullish momentum. However, if the index falls below 105.85, this could trigger fresh selling, potentially invalidating the case for a bullish continuation.