Introduction
The recent decline in the U.S. Dollar Index (DXY) can be attributed to a combination of factors. One of the primary reasons is a shift in market sentiment towards riskier assets. As investor confidence has grown, partly due to strong earnings reports from major companies, there has been a move away from the U.S. dollar, which is often viewed as a safe-haven asset during times of uncertainty.
Another significant factor is the market’s evolving expectations regarding Federal Reserve interest rate policy. Although the Fed has maintained a cautious stance, indicating that rate cuts may not happen until later in the year or potentially even next year, the overall market sentiment seems to be adjusting to this timeline. This has led to a softening of the dollar, as traders anticipate a slower pace of rate hikes or even potential cuts in the near future.
Additionally, rising U.S. Treasury yields, which usually support the dollar, have not been enough to counterbalance the impact of these shifting expectations and the increased risk appetite in the markets.
These dynamics have caused the DXY to fall from recent highs, with the index now trading below key technical levels, though it remains above some crucial long-term supports (DailyFX) (DailyFX) (FX Empire).
Technical Analysis
Weekly Chart
The weekly chart is currently testing the support side of the symmetrical triangle. Last weeks close was a dogi that was more on the bullish side. In fact, if this week’s candle closes green, we would see a very bullish setup.
Daily Chart
On the daily chart we can see a clearer picture of the bullish formation in action. Price must stay above 102.064 for the bull case to be in tact. Even though DXY is not a tradeable instrument its a good index to track because generally if DXY is going up, stocks don’t rally as hard since they are priced in Dollars.
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