The US Dollar Index (DXY), which gauges the USD’s value against six prominent currencies, is maintaining its position after a slight rise the previous day, sitting around 102.10 following a retreat from almost 18-month peaks during Tuesday’s European session.
Currently, the outlook is somewhat optimistic as the index remains above both the nine-day and 50-day Exponential Moving Averages (EMAs), which helps establish a supportive framework. The 14-day Relative Strength Index (RSI) is around 75.6, indicating overbought conditions, suggesting that while there is still upward momentum, it may be stretched thin at this point.
Moreover, daily chart technical analysis shows the dollar index trending higher within an ascending wedge pattern, signaling that a brief bullish continuation may currently be in play. However, a bearish reversal or a correction could occur if it reaches the apex of this pattern or breaks through its lower support level.
The US Dollar Index could face initial resistance near an 18-month high of 102.53, a level hit on October 6, with further resistance at the upper boundary of the wedge at 102.80.
Looking at potential downside, the primary support is located at the lower boundary of the ascending wedge around 101.70, followed closely by the nine-day EMA at 101.60. A drop below this combined support area might trigger a bearish reversal, placing downward pressure on the dollar index and potentially leading to a test of the 50-day EMA at 100.37. Further declines could expose a four-month low of 98.56 recorded on August 20.
Dollar support holds as ISM services show expansion
Analysts from ING point out that the latest US services data suggests the economy is still expanding, although the momentum has slightly eased. They report that “the ISM services index dipped to 54.9 from 55.4 (consensus 55.0), but it stays firmly in the expansion zone,” noting that “business activity and new orders softened” over the month. Yet, ING emphasizes that “a rise in employment and order backlogs, along with a new high in prices paid, mitigated the decline,” which supports the notion that the demand in the services sector and inflationary pressures remain resilient enough to keep the dollar strong.
