US Dollar Forecast: DXY Vulnerable if Oil Extends Slide, Hits Inflation Outlook

U.S. Dollar Index Pauses After Multi-Day Slide

The U.S. Dollar Index is slightly higher early Wednesday, trading at 98.204, up 0.10%. After several days of losses, the market is trading inside Tuesday’s range. Traders aren’t committed to either side right now.

Geopolitical Easing and Soft PPI Hit the Dollar

The dollar’s recent slide comes down to two things. Fear left the market and inflation cooled. Reports that the United States and Iran may restart talks took the risk premium out of safe-haven assets. When fear retreats, the dollar goes with it. Oil dropped hard on the same news and lower oil means less inflation pressure. That takes away one of the dollar’s main supports.

I looked at the March Producer Price Index and 0.5% against an expectation of 1.1% is a big miss. The Federal Reserve has more room to move than it did last week. That changes the rate picture and Treasury yields felt it. When yields drop, money moves. The euro picked up flow. So did the British pound. The Japanese yen strengthened. Nobody is making a large directional bet right now because one headline flips everything. But the dollar is clearly not the favorite trade this week.

Dollar Rebound Looks Like a Pause

The 0.10% bounce this morning isn’t a recovery. It’s a rest. Lower inflation, falling oil and reduced geopolitical risk are all still in play. Unless something changes on those three fronts, the dollar stays under pressure.

Technical Outlook

The main trend is down according to the daily swing chart. A trade through yesterday’s low at 97.960 will signal a resumption of the downtrend. The short-term trend will change to up if buyers can take out 99.183.

The long-term range is 95.551 to 100.643. The index is currently straddling the top or 50% level of its range at 98.097. This is a normal reaction. Trader reaction to the 50% level will set the tone today.

A sustained move over 98.097 could trigger a short-covering rally into the 200-day moving average at 98.515 and the 50-day moving average at 98.696.

Heavy selling pressure under 98.097 could trigger a steep break into the 61.8% support at 97.496.

More Information in our Economic Calendar.