The US Dollar Index (DXY) is poised for a third consecutive week of gains, currently hovering around 103.37, fuelled by a confluence of factors that have recalibrated market expectations for US monetary policy. Robust labour market data and strong economic activity have cast doubt on aggressive rate cuts previously anticipated by investors. This has bolstered the allure of the Greenback, driving its recent ascent.
Pushback from Federal Reserve officials like Christopher Waller, emphasizing a measured approach to rate adjustments, has further dampened hopes for swift easing. This sentiment resonates with market participants, adjusting their projections closer to 140 basis points of cuts this year, down from initial estimates of 165 basis points.
Deepening woes in China’s property sector and broader financial markets have prompted risk aversion, driving capital towards the perceived safety of the US Dollar. This external uncertainty further reinforces its relative strength.
Examining the 4-hour chart of the DXY reveals a bullish technical picture. The price action currently hovers around the 20-SMA, comfortably above the 50-SMA and 100-SMA, indicating a positive underlying trend. The flat RSI hovering around the 50 level further suggests price stability.
However, the market remains sensitive to potential catalysts. A break above the initial resistance at 103.695, with the 20-SMA holding as support, could confirm the bullish momentum, potentially pushing the DXY towards 104.038 and 104.282.
Conversely, a sustained push below the 20-SMA, particularly with significant selling volume, might trigger a bearish reversal, potentially targeting the 23.60% Fibonacci retracement level at 102.967. A further breakdown below this level could open the door for declines towards the 38.20% and 50% Fibonacci retracement levels at 102.519 and 102.157, respectively.
The DXY faces a technical tug-of-war, with the 20-SMA providing a bullish base and the 23.60% Fibonacci retracement offering potential resistance. A sustained push above the 20-SMA and 103.695 could confirm the bullish momentum and propel the DXY towards higher levels. However, failure to hold above the 23.60% Fibonacci retracement might trigger a pullback towards 102.519 and 102.157.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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