- The US dollar index is expected to drop to around 97.90 during the early European trading sessions on Wednesday.
- The negative outlook for the index is highlighted by it trading below the 100-day EMA and having a bearish RSI indicator.
- Initial support is anticipated at 97.75, while immediate resistance is seen at 99.16.
The US Dollar Index (DXY)—which measures the dollar’s value against a basket of six major currencies—is declining towards 97.90 in early European trading on Wednesday. This drop follows some optimism around a potential ceasefire between Israel and Iran, a scenario that US President Donald Trump has been advocating. As a result, the demand for safe-haven assets like the dollar has diminished somewhat.
The daily chart indicates a bearish sentiment for the DXY, especially since it has fallen beneath the significant 100-day EMA. Moreover, this downward trend is reinforced by the 14-day relative strength index (RSI), sitting under the midline at about 37.95, which suggests short-term support for sellers.
The initial support level for the US Dollar Index seems to align with the lower boundary of the Bollinger Band at 97.75. A further decline could see it testing 97.61, which was its lowest point on June 12th. Following that, another key level to monitor would be 96.55, indicative of February 25, 2022.
On the bullish side, the first significant resistance for the DXY is at 99.16, reached on June 19th. If there are continued purchases over this threshold, it could lead to an upper limit at 99.65 according to the Bollinger Bands. A decisive break above these levels might push it towards the psychological 100.00 mark, en route to the 100-day EMA at 101.35.
US Dollar Index (DXY) Daily Chart
US Dollar FAQ
The US dollar (USD) serves as the official currency of the United States and is widely accepted alongside local currencies in many countries. As of 2022, it is the most traded currency globally, accounting for over 88% of forex transactions, which averages around $6.6 trillion daily. After World War II, the dollar replaced the British pound as the global reserve currency. Historically, it was backed by gold, but the Bretton Woods Agreement in 1971 marked the end of the gold standard.
The primary factor influencing the dollar’s value is the monetary policy set by the Federal Reserve. The Fed aims for price stability and full employment, primarily adjusting interest rates to achieve these goals. If inflation surges past the Fed’s 2% target, interest rates are likely to be raised, which can boost the dollar’s value. Conversely, lowering rates becomes necessary when inflation dips below the desired level or unemployment rises significantly, which tends to weigh on the greenback.
In extreme situations, the Federal Reserve might resort to printing more dollars through quantitative easing (QE). This approach dramatically enhances credit flow in the financial system, particularly when access to credit dries up, as seen during the 2008 financial crisis. Using QE, the Fed would purchase US government bonds from financial institutions. However, this strategy usually leads to a weaker dollar.
Quantitative tightening (QT) is the opposite approach, where the Federal Reserve halts bond purchases and avoids reinvesting from matured bonds. Typically, QT is supportive of the US dollar.
