In the past week, we have seen some recovery in the dollar index after a period of losses. However, this uptick seems to be a temporary pause for profit-taking by sellers before the next downward shift. The US dollar has been facing significant pressures since late June, particularly after signals from the Federal Reserve indicating progress in curbing inflation. As a result, there is now a high likelihood of a rate cut in September.
The recent changes in market expectations have led to a gradual decline in short-term bond yields, which has reduced interest in the dollar. Over the past month, these shifts have already resulted in a 2% decrease in the dollar’s value. From a technical standpoint, the Dollar Index (DXY) has breached several key levels, indicating a potential shift towards a downward trend.
The downward pressure on the dollar has pushed it out of the upward channel that it had been following since December. Currently, a descending corridor is forming, with clear boundaries based on previous lows and highs. This pattern suggests a sustained bearish sentiment towards the dollar in the market.
Despite the recent bounce in the Dollar Index, it has met resistance near the 200-day moving average. Additionally, the 50-day moving average is pointing downwards, possibly forming a “death cross” in the near future. These technical indicators reinforce the bearish outlook for the dollar in the coming weeks.
If the resistance at the 200-day moving average continues, we could see the Dollar Index decline towards the intermediate target at 102.3, representing a 1.7% decrease from the current level. A more critical level to watch is the 101 area, which is approximately 2.9% lower and has historical significance from previous lows. A breach below this level could signal a definitive end to the dollar’s bullish run, potentially leading to a further decline towards the 90-92 range.
The recent market movements suggest a significant shift in sentiment towards the US dollar, with technical indicators pointing towards a sustained downward trend. Traders and investors should closely monitor the key support and resistance levels mentioned above to gauge the potential future trajectory of the Dollar Index.
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