The Dollar Index (DXY) experienced a subtle retreat last week as traders pivoted toward the prospect of early rate cuts by the Federal Reserve.
A marginal dip of one basis point slightly offset the robust gains witnessed in the initial week of the new year. This shift in sentiment was triggered by an unexpected downturn in U.S. producer prices during December, defying expectations of a 0.1% increase by contracting 0.1%.
The resultant slide in Treasury yields amplified market speculation, propelling the likelihood of a rate cut from 62.6% a mere week ago to a notable 70%, according to the CME FedWatch tool. As traders navigate the current economic landscape, all eyes are now on the upcoming economic calendar, with heightened anticipation for key indicators such as U.S. retail sales and jobless claims.
The Dollar Index (DXY) is engaged in a broader downtrend as it follows a discernible descending channel pattern beneath the 100-day moving average on the daily timeframe.
Succumbing to downward pressures, it found support at the 100.617 level, coinciding with the lower boundary of the descending channel amid oversold Relative Strength Index (RSI) conditions. An ensuing upsurge propelled the index towards the upper channel boundary, aligning precisely with the 61.80% Fibonacci Retracement Golden Ratio. Despite this, the index has entered a consolidation phase within a rectangle pattern, signalling market indecision.
Market participants keenly await a breakout, with a downside move potentially targeting the 100.617 level, a crucial point of interest. Conversely, an upside breakout beyond the channel and Golden Ratio could trigger a retest of the 104.262 resistance level, established in December after the swift downturn.
In conclusion, the Dollar Index’s recent subtle retreat reflects the delicate balance between economic indicators and market sentiment. Amid the ongoing consolidation, traders await a potential breakout, with implications for both downside risks or a retest of the 104.262 resistance.
Sources: U.S. Bureau of Labor Statistics, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd (hereinafter referred to as “Trive SA”), with registration number 2005/011130/07, is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002. Trive SA is authorised and regulated by the South African Financial Sector Conduct Authority (FSCA) and holds FSP number 27231. Trive Financial Services Ltd (hereinafter referred to as “Trive MU”) holds an Investment Dealer (Full-Service Dealer, excluding Underwriting) Licence with licence number GB21026295 pursuant to section 29 of the Securities Act 2005, Rule 4 of the Securities Rules 2007, and the Financial Services Rules 2008. Trive MU is authorized and regulated by the Mauritius Financial Services Commission (FSC) and holds Global Business Licence number GB21026295 under Section 72(6) of the Financial Services Act. Trive SA and Trive MU are collectively known and referred to as “Trive Africa”.
Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. Trive Africa and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered. Please consider the risks involved before you trade or invest. All trades on the Trive Africa platform are subject to the legal terms and conditions to which you agree to be bound. Brand Logos are owned by the respective companies and not by Trive Africa. The use of a company’s brand logo does not represent an endorsement of Trive Africa by the company, nor an endorsement of the company by Trive Africa, nor does it necessarily imply any contractual relationship. Images are for illustrative purposes only and past performance is not necessarily an indication of future performance. No services are offered to stateless persons, persons under the age of 18 years, persons and/or residents of sanctioned countries or any other jurisdiction where the distribution of leveraged instruments is prohibited, and citizens of any state or country where it may be against the law of that country to trade with a South African and/or Mauritius based company and/or where the services are not made available by Trive Africa to hold an account with us. In any case, above all, it is your responsibility to avoid contravening any legislation in the country from where you are at the time.
CFDs and other margin products are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. See our full Risk Disclosure and Terms of Business for further details. Some or all of the services and products are not offered to citizens or residents of certain jurisdictions where international sanctions or local regulatory requirements restrict or prohibit them.