In the early European trading session on Tuesday, the US Dollar Index (DXY) has managed to claw back some ground, reaching approximately 103.60. This marks a 0.14% gain for the day so far. However, despite this minor uptick, the overall sentiment surrounding the DXY remains predominantly bearish.
Rally Amidst Broader Uncertainty
The DXY, which gauges the value of the US dollar against a basket of six major world currencies, has been on a rollercoaster ride. The recent recovery to near 103.60 comes against the backdrop of growing apprehensions. Market participants are increasingly worried that President Donald Trump’s proposed tariff policies could set off a chain reaction, leading to a more widespread economic slowdown. This concern has cast a shadow over the greenback’s potential for substantial upward movement.
Fed Decision Looms Large
All eyes are now fixed on the upcoming US Federal Reserve (Fed) interest rate decision, scheduled for Wednesday. Current market expectations point towards no change in the interest rates during this meeting. According to the CME FedWatch tool, the markets have priced in nearly a 60% probability of rate cuts for the remainder of the year, with expectations of a little over two reductions. Such anticipations have already started to influence market sentiment and trading strategies.
Technical Indicators Signal Bearishness
A glance at the daily chart provides further evidence of the DXY’s bearish sentiment. The index continues to trade below the crucial 100-day exponential moving average (EMA), a key technical indicator. This position below the EMA suggests that the short to medium-term trend for the DXY is weakening. Adding to this bearish picture is the 14-day relative strength index (RSI). Currently, the RSI stands at around 31.50, well below the midline. This indicates that the downward momentum is still strong, and in the near term, sellers seem to be in control.
Support and Resistance Levels
For those closely monitoring the DXY, support and resistance levels play a crucial role in predicting future price movements. The initial support level for the US dollar index is at 103.35, which was the low recorded on March 17. Should the index break below this level, the next area of contention lies at 102.20, the lower limit of the Bollinger band. Further down, the 100.53 mark, which was the low on August 28, 2024, serves as an additional downside filter.
On the upside, the first obstacle for the DXY is at 104.10, the high recorded on March 14. If the index manages to break through this level and sustain upward momentum, it could potentially pave the way for a move towards 106.15, the 100-day EMA. A decisive break above this 106.15 level might trigger a more significant rally, with the next target at 107.38, the high from February 19.
In conclusion, while the US Dollar Index has seen a minor recovery in the early European session, the underlying bearish sentiment remains intact. Geopolitical and economic uncertainties, along with dovish market expectations regarding the Fed’s future actions, continue to weigh on the greenback. Traders and investors will be closely watching the Fed’s decision on Wednesday, as well as key support and resistance levels, to make informed decisions in the days ahead.
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