Having experienced a setback of nearly 1.5% in the previous week, the US Dollar Currency Index (DXY) initiated the new week with another downturn. This decline unfolded as the Federal Reserve opted to maintain its current rates during the December meeting, concurrently hinting at the possibility of three cuts in the coming year.
Although the dollar managed to recover some of its recent losses following remarks from New York Fed Bank President John Williams, cautioning against premature discussions on rate cuts, prevailing market sentiment continues to lean towards expectations of monetary easing in March. Notably, the week’s focal point lies in the anticipated release of the PCE Price Index data. This data holds the potential to provide the market with enhanced insight into the inflationary landscape of the economy, thereby influencing the sustainability of the optimistic outlook that currently shapes the market’s expectations.
Technical
On the 4H chart, the bearish momentum is evident by the recent crossing of the 25-SMA (green line) below the 100-SMA (orange line), while the 50-SMA (blue line) looks to do the same since the breakdown occurred from the ascending channel. However, the price is currently moving sideways in a narrow range, a testament to the market’s caution after a period of prolonged selling pressure.
Resistance at 102.661 is keeping the sellers in play, but a breakout above this level could lead to the ultimate test of the 25-SMA at 102.797. The Fibonacci midpoint could come into focus at 103.018 if the price breaches this level, while higher resistance is established at 103.185. If the buying pressure is sustained, the 61.8% Fibonacci golden ratio could provide psychological resistance at 103.312, with the 50-SMA and 100-SMA not far above.
However, if resistance at 102.661 holds, the downturn could continue. Support at 102.305 and 102.115 could be the only support levels preventing the sellers from retesting the prior bottom, around 101.830.
Summary
The US Dollar Index is moving sideways in a narrow range, anticipating its next directional move after the recent selloff. Resistance at 102.661 could be crucial in determining whether the current retracement will be sustained.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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