Dollar pullback alarm sounded! Two bearish signals in a row on the candlestick chart, and the dollar index is facing a stall just after breaking above the 100-week moving average.

Note that the dollar has been rising steadily since mid-September and may continue to do so, but warning signals on the charts suggest the risk of a pullback is increasing. Until recently, technical indicators appeared to remain on the side of dollar bulls. The dollar index a widely tracked basket of six currencies traded against the dollar broke through an important chart milestone last week. That milestone was the 100-week moving average. Technical analysts use moving averages to better understand trends by smoothing out price extremes. A break above that line is seen as a bullish signal and, in the dollar's case, appeared to herald a new phase in a rally that began earlier this month a rally that has gained 2.8% from trough to peak. However, no sooner had the dollar index broken above its 100-week moving average than it ran out of momentum on Friday. That day's price action formed what is known as a bearish engulfing pattern. As the name suggests, the pattern tends to signal that prices will fall. One of the tools technical analysts use to understand the balance of power between buyers and sellers is the candlestick chart, which presents key prices the open, high, low and close for a given period in an easy-to-understand form. A bearish engulfing pattern is a candlestick formation made up of a down candle whose range between its open and close is larger than that of the preceding up candle. It is seen as a signal that positive momentum is fading. On Monday, that reading was reinforced by another candlestick pattern known as a bearish harami, in which the range between the open and close is contained within the prior day's open and close. It, too, is seen as a signal that the market is losing momentum and entering a phase of indecision. The next few trading sessions could prove critical for the dollar. If the index falls below its 100-week moving average, located near 100.7, market participants will view the 100 level as key to judging whether it could slide toward its Sept. 9 low of 98.5980. If Friday's bearish engulfing pattern turns out to be merely a blip, however, attention will turn to the area around 101.63 to 101.80. According to LSEG data, the June and July highs sit in that range. Technical analysts consider prior highs significant, as they can slow or accelerate a rally. A break above those highs could push the dollar toward 102.87 the midpoint of the January 2025 to January 2026 decline and later potentially toward 104.59.