- During early European trading on Tuesday, the US dollar index dipped to 101.6, marking a 0.19% decline for the day.
- The index’s negative outlook is evident as it trades below the 100-day exponential moving average (EMA).
- A critical support level to monitor is at 100.00, with the initial resistance seen around 103.35.
The US Dollar Index (DXY), which measures the value of the US dollar against a basket of six currencies, has pulled back from its recent peak of 101.60, reached on April 10. Nonetheless, some optimism regarding tariff agreements between the US and China is helping to ease concerns over potential trade tensions, providing some support to the dollar.
From a technical perspective, the bearish sentiment for the DXY remains as it sits below the vital 100-day EMA on the daily chart. There’s still a chance for a slight recovery, as the 14-day relative strength index (RSI) hovers around neutral territory.
The main support level for the DXY is the psychological 100.00 mark. If this level is breached, it could lead to a drop towards the low of 99.23 from May 7. Further declines could target 98.02, which was the lowest on April 22.
On a more positive note, the 100-day EMA at 103.35 acts as an immediate resistance point for the DXY. There’s also significant resistance at the high of 104.31 noted on April 2. If things turn favorable, the index could extend upwards toward the peak of 104.71, which occurred on March 27.
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 used in several other countries alongside local currencies. As of 2022, it was the most commonly traded currency globally, making up over 88% of forex transactions—an average of $6.6 trillion daily. The dollar became the world’s primary reserve currency post-World War II, succeeding the British pound, and was historically backed by gold until the Bretton Woods Agreement in 1971 eliminated this standard.
The primary factor influencing the USD’s value is the monetary policy determined by the Federal Reserve. This includes two main objectives: maintaining price stability (controlling inflation) and ensuring full employment. The Federal Reserve utilizes interest rate adjustments as their foremost tool for achieving these aims. If inflation exceeds the target of 2%, the Fed may raise interest rates, bolstering the dollar. Conversely, if inflation falls below this threshold or unemployment rises too high, interest rates may be lowered, which typically weakens the currency.
In extreme situations, the Federal Reserve might increase the money supply through quantitative easing (QE), which significantly boosts credit availability in the financial system when lending is constrained. This is generally a last resort, particularly during credit crises. The Fed’s response to the financial crisis of 2008 showcased this, as they printed more dollars to acquire US government bonds mainly from financial institutions. Generally, QE tends to weaken the dollar.
Conversely, quantitative tightening (QT) represents the Fed’s withdrawal from purchasing bonds and halting reinvestment in maturing bonds. This process typically has a positive effect on the value of the US dollar.
