US Dollar Index Rises on Reduced Banking Sector Concerns, Higher Risk Appetite

Key Takeaways

• US dollar Index gains against major currencies
• Investors focus on Fed’s inflation-fighting measures
• Underpinned by reduced concerns over banking sector

Overview

On Thursday, the US dollar is gaining ground against major currencies, as investors shift their focus to the Federal Reserve’s inflation-fighting measures amid reduced concerns over the banking sector.

At 04:59 GMT, June US Dollar Index futures are trading 102.370, up 0.072 or +0.07%. On Wednesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.91, up $0.07 or +0.25%.

The dollar index had previously fallen by 2% in March due to market turbulence stemming from issues in the banking industry.

Despite this, broader risk sentiment seems to be improving, as concerns about bank contagion decrease and Chinese equities rally, boosting investor risk appetite. However, there may still be volatility in the coming days due to month-end and risk-on, risk-off trading flows.

US Banking Sector Recovers as Investors Turn Attention to Fed’s May Meeting

The US banking sector suffered in recent weeks after two lenders collapsed and Credit Suisse was rescued. This caused concerns that the Fed may have to pause rate hikes in its fight against inflation, putting pressure on the dollar.

However, improved sentiment has emerged with no further signs of cracks in the financial sector, allowing investors to focus on the Fed’s upcoming meeting in May.

The market is now pricing in a 60% chance of the Fed standing pat on interest rates.

The dollar index, which includes the Euro, Japanese Yen, and Sterling, was up slightly, with the euro down 0.13% and sterling down 0.11%. The Japanese Yen has been volatile ahead of the end of the Japanese fiscal year on Friday.

Daily June US Dollar Index Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending slightly higher following the closing price reversal bottom on March 23.

A trade through 101.555 will signal a resumption of the downtrend. A more through 105.490 will change the main trend to up.

The minor trend is down. A trade through 103.025 will change the minor trend to up. This will confirm the shift in momentum.

The index is currently straddling the main Fibonacci level at 102.310. The nearest resistance is the main 50% level at 102.918.

Daily June US Dollar Index Technical Forecast

Trader reaction to the main Fibonacci level at 102.310 is likely to determine the direction of the June US Dollar Index on Thursday.

Bullish Scenario

A sustained move over 102.310 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 102.918, followed by the minor top at 103.025. The latter is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 102.310 will signal the presence of sellers. Taking out the minor bottom at 102.030 will indicate the selling pressure is getting stronger. This could trigger the start of an acceleration to the downside with 101.555 the next major target.