- The US Dollar index is expected to rise to about 98.25 in the early European session on Friday.
- However, the outlook for the index remains negative, currently trading below a 100-day EMA and accompanied by a bearish RSI indicator.
- The first support level to monitor is at 98.00, while resistance is anticipated at 99.38.
The US Dollar Index (DXY), which represents the value of the US Dollar against a group of six major currencies, saw its two-day upswing come to an end during early trading in Europe on Friday. This shift is attributed to a risk-off sentiment influenced by rising geopolitical tensions in the Middle East, which tends to bolster the US dollar.
An analysis of daily charts shows that the bearish trend in DXY continues, as it falls beneath the critical 100-day exponential moving average (EMA). Furthermore, the weakening momentum is reinforced by the 14-day relative strength index (RSI), which is lingering below the midline at around 39.50, encouraging sellers in the near term.
The initial support for the USD index appears to be at 98.00, which aligns with the lower end of the Bollinger band and serves as a psychological level. If it goes lower, the next level to watch is 97.61, which was recorded on June 12. Below that, there’s another critical level at 96.55, observed on February 25, 2022.
On the flip side, the first significant barrier for DXY’s potential upside is at 99.38, a peak reached on June 10. If it surpasses this level, there’s a possibility of heading toward the major resistance zone of 100.00. A decisive break above those points may lead to an increase at the upper limit of the Bollinger Band, which is at 100.40.
US Dollar Index (DXY) Daily Chart
US Dollar FAQ
The USD is the official currency of the United States, and it’s widely used as a secondary currency in several other nations. Data from 2022 indicates it’s the most traded currency globally, making up over 88% of foreign exchange transactions, averaging around $6.6 trillion a day. Following World War II, it replaced the British pound as the world’s reserve currency. For a long time, it was supported by gold, but the Bretton Woods Agreement in 1971 led to the abandonment of the gold standard.
The primary factor influencing the USD’s value is monetary policy set by the Federal Reserve. The Fed aims to maintain price stability and ensure full employment. Its main instrument for achieving these goals is changing interest rates. When inflation rises above the Fed’s target of 2%, interest rates are typically increased to help boost the USD. Conversely, if inflation dips below 2% or unemployment spikes, the Fed might lower rates, which tends to pressure the dollar.
In certain situations, the Federal Reserve may opt to print more money and implement quantitative easing (QE). QE significantly increases the flow of credit in the financial system, often as a response to situations where lending becomes stagnant due to fears of defaults. It’s generally used as a last resort when lowering interest rates alone isn’t effective. During the 2008 financial crisis, the Fed utilized QE extensively, printing more dollars to purchase US government bonds from financial institutions, which typically weakens the dollar.
On the flip side, quantitative tightening (QT) is the opposite strategy, where the Fed halts bond purchases from financial institutions and refrains from reinvesting in new bonds after old ones mature. This usually has a positive effect on the value of the US dollar.
