US Dollar (DXY) Index News: Hovering Near Critical Resistance Level

James Hyerczyk
Published: May 23, 2024, 14:00 GMT+00:00

Key Points:

  • Dollar Index hovers near one-week high, facing resistance at the 50-day moving average.
  • Fed officials express uncertainty on rate cuts, highlighting inflation concerns.
  • Euro rises 0.22% against Dollar as Eurozone PMI indicates growth.
US Dollar Index (DXY)

Dollar Index Faces Resistance

The U.S. Dollar is struggling to maintain its bullish momentum from yesterday against a basket of major currencies on Thursday, hovering near a one-week high. The Dollar Index (DXY) is finding it challenging to break through the 50-day moving average, a critical level that could trigger further upside if surpassed.

At 13:47 GMT, the U.S. Dollar Index is trading 104.841, down 0.069 or -0.07%.

Fed Minutes and Interest Rate Outlook

U.S. Treasury yields were flat as investors assessed the timing of potential rate cuts by the Federal Reserve. The 10-year Treasury yield was slightly lower at 4.43%, while the 2-year yield rose marginally to 4.884%. Fed minutes released on Wednesday highlighted officials’ concerns about inflation and their uncertainty about when to ease rates. Members indicated a lack of confidence in moving forward with interest rate reductions, suggesting a more cautious approach to monetary policy.

Impact of Fed Policy on the Dollar

The hawkish tone of the Fed minutes has introduced uncertainty into the market, with traders now contemplating the possibility of prolonged higher interest rates. This scenario could support the Dollar by making it a more attractive investment compared to lower-yielding currencies. However, the DXY’s failure to break through technical resistance levels indicates a cautious market sentiment.

Eurozone Business Activity Boosts Euro; Sterling Steady, Yen Weak

The Euro gained 0.22% against the U.S. Dollar to $1.08450 as Eurozone business activity reached its highest pace in a year, with the PMI exceeding 50 for the third consecutive month. The British Pound remained steady at $1.2725 ahead of the UK election, while the Japanese Yen weakened to 156.64 yen despite positive PMI data. The Yen’s weakness prompted calls for rate hikes or government intervention. Given the hawkish Fed stance, the short-term outlook for the U.S. Dollar Index remains bullish.

Market Forecast: Bullish

Given the hawkish Fed minutes and the potential for further rate hikes, the short-term outlook for the U.S. Dollar Index is bullish. Higher interest rates would make the Dollar more attractive to investors, likely leading to further gains if the DXY can overcome its current resistance levels. Traders should monitor upcoming economic data and central bank comments for further direction.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is trading nearly flat on Thursday, but remains poised to overtake the 50-day moving average at 104.951. Breaking above this level would indicate a shift in the intermediate trend to bullish, potentially triggering a surge with 105.742 as the next target.

Failure to surpass the 50-day moving average would suggest strong seller presence, potentially leading to a retest of the 200-day moving average at 104.384. This indicator is crucial for determining the longer-term trend.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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