- During the early European trading session on Thursday, the US dollar index decreased to about 98.35, marking a 0.26% drop for the day.
- The outlook for the index appears negative as it remains below the 100-day EMA.
- Key support levels to monitor are in the 98.10-98.00 range, with the initial resistance noted at 99.38.
The US Dollar Index (DXY), which measures the value of the dollar against a mix of six other currencies, has fallen to its lowest point in seven weeks, nearing 98.35. This decline is attributed to a potential yearly rate cut by the Federal Reserve and ongoing uncertainty surrounding trade tariffs. Investors are closely watching the upcoming US Producer Price Index (PPI) release on Thursday, along with the first weekly unemployment claims data.
From a technical standpoint, the bearish sentiment for the DXY persists as it trades below the significant 100-day moving average on the daily chart. The negative momentum is further indicated by the 14-day relative strength index (RSI), which is currently under the midline, around 38.80, hinting that further declines could be on the horizon.
The primary support level for the US Dollar Index lies within the 98.10-98.00 range, which corresponds to both the lower Bollinger band and a psychological barrier. A breach of this level could lead to even lower points at 97.70, seen on March 30, 2022. If the decline continues, the next downside target would be 96.55, the lowest level reached on February 25, 2022.
On a more optimistic note, the high recorded at 99.38 on June 10 serves as immediate resistance for the DXY. Additional resistance levels can be found at the psychological threshold of 100.00, with potential gains extending to the upper Bollinger Band limit of 100.60.
US Dollar Index (DXY) Daily Chart
US Dollar FAQ
The US dollar (USD) is the official currency of the United States and is also widely used in various other countries alongside local currencies. As of 2022, it stands as the most traded currency globally, accounting for over 88% of forex transactions, or around $6.6 trillion daily. Following World War II, the US dollar replaced the British pound as the global reserve currency. Historically, it was backed by gold until the Bretton Woods Agreement in 1971, which led to the abandonment of the gold standard.
The value of the US dollar is primarily influenced by the monetary policy set by the Federal Reserve. The Fed aims to maintain price stability and promote full employment, using interest rate adjustments as its main tool. If inflation rises rapidly beyond the Fed’s 2% benchmark, interest rates may increase, positively affecting the dollar’s value. Conversely, if inflation dips below 2% or unemployment rates soar, the Fed might reduce rates, which could put downward pressure on the dollar.
In extreme situations, the Federal Reserve might also resort to printing more dollars and implementing quantitative easing (QE). QE significantly boosts credit flow into the financial system during times of crisis, such as the 2008 financial downturn. This approach typically weakens the dollar, as it involves the Fed purchasing US government bonds from financial institutions.
Conversely, quantitative tightening (QT) refers to the process where the Federal Reserve ceases bond purchases and does not reinvest the principal from maturing bonds. This is generally considered a positive sign for the value of the US dollar.
