Advertisement
Advertisement
US Dollar Forecast: DXY Pulls Back on Profit-Taking Ahead of China Talks
By:
Key Points:
- Dollar Index posts weekly gain despite Friday dip as traders lock in profits ahead of U.S.-China trade talks.
- DXY remains bullish above 99.391 support, with resistance at 101.302 and potential upside to 102.20 on a breakout.
- U.S.-UK trade deal boosts market optimism, signaling a potential softening in U.S. global tariff strategy.
Dollar Index Ends Flat but Holds Weekly Gain as Trade Optimism Builds
The U.S. Dollar Index (DXY) closed slightly lower on Friday, pulling back as traders booked profits ahead of critical weekend trade discussions between U.S. and Chinese officials in Switzerland.
Despite the modest daily dip, the greenback remains in a broader uptrend, underpinned by a sequence of higher highs and higher lows that reflect sustained bullish sentiment. The index has short-term support at 99.391, with a deeper break below 99.172 signaling a potential trend reversal.
On Friday, the U.S. Dollar Index (DXY) settled at 100.424, down 0.212 or -0.21%.
Trade Optimism Underpins Dollar Strength
The dollar was poised for a weekly advance against major currencies including the Swiss franc, euro, and Japanese yen.
A recently announced U.S.-UK trade deal, which maintained a 10% base tariff on British goods while reducing levies on auto imports, lifted hopes of broader easing in global trade tensions.
Market participants viewed the agreement as a signal that the U.S. administration may be preparing to soften its stance on tariffs ahead of the U.S.-China trade meetings.
StoneX’s Matthew Weller noted a growing sense that “the worst of the trade wars and tariffs is behind us,” and this sentiment has been increasingly priced into markets.
The dollar’s strength against the Swiss franc—up for the fourth straight week—contrasted with Friday’s pullback of 0.35%, settling at 0.82865. Similar trends were observed versus the yen and euro, with weekly gains intact despite daily softness.
Mixed Currency Moves Reflect Diverging Central Bank Paths
Diverging central bank actions added further complexity to dollar positioning. The Federal Reserve left interest rates unchanged at 4.25% to 4.50%, resisting political pressure for cuts.
Meanwhile, the Bank of England reduced rates, while Sweden and Norway opted for no changes. This policy divergence helped anchor the dollar’s relative yield advantage, though a rally in the Taiwan dollar and broader gains in some Asian currencies applied selective downward pressure.
The dollar ended the week weaker against the offshore yuan at 7.236 and fell 0.48% to the Korean won at 1,397.98. However, these losses were offset by broader G10 strength, keeping the DXY technically buoyant.
Treasury Yields Steady on Trade Deal Expectations
U.S. Treasury yields were mostly unchanged, with the 10-year note ticking up to 4.386% and the 2-year yield nearly flat at 3.889%. Fixed income traders maintained a cautious stance, awaiting clarity from upcoming U.S.-China trade talks. Markets expect further trade deals could eventually moderate global tariffs, although current levies on Chinese goods remain elevated at 145%.
Outlook: Bullish Trend Intact Pending Trade Talks Outcome
While Friday’s modest retreat reflected profit-taking, the dollar’s upward trend remains intact above key support at 99.391. A break below 99.172 would shift short-term momentum.
On the upside, the DXY faces resistance at 101.302, with a breakout potentially targeting the 50-day moving average at 102.20.
The market’s reaction to the trade meetings in Switzerland will be critical—constructive developments could sustain the bullish tone, while disappointment may trigger a correction toward trend support.
More Information in our Economic Calendar.
About the Author
James Hyerczykauthor
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.
Advertisement