The dollar has rallied for most of this year, but recent price action has been choppy, and technical analysis indicates that the US currency now faces a critical test if it is to launch a new phase of gains.
To gauge the overall strength of the greenback, traders often look to the dollar index, which measures it against a basket of six major currencies. Recent dollar price action has been choppy due to a technical hurdle standing in its way - the monthly Ichimoku cloud. Ichimoku analysis is a technical charting system that uses several lines similar to moving averages and a shaded area, known as the cloud, to show trend direction, momentum, and key support or resistance levels at once. The base of the monthly cloud has capped dollar gains - first in May 2025 and again in June this year, when the index turned lower after nearing it.
This particular cloud is unusually thick, spanning from 102.00 to 105.57, according to data supplied by LSEG, making the base a formidable barrier to clear. The base of a cloud acts like a ceiling and the thicker the actual cloud is, the more buying pressure is typically needed to break through the base convincingly.
The dollar's medium-term trend remains positive, but 102.00 - the cloud base - is the line it must surpass on a sustainable basis to build confidence among traders that another leg higher is possible. Until then, choppy price action within its 12-month range of 95.56 to 101.80 should be expected. However, the longer the index fails to surpass the cloud base, the greater the risk of a larger pullback and a drop under the 100-month moving average, currently at 99.29. This scenario could negate the positive bias for the dollar.