Introduction
The U.S. Dollar Index (DXY), which measures the dollar’s performance against a basket of major currencies, has rallied hard since the Trump victory. Lets take a closer look at the technicals.
Technical Analysis Overview
Weekly Chart Highlights:
- Uptrend Continuation: The DXY has been in a steady uptrend since October 2024, gaining approximately 7% during this period.
- Key Resistance Levels:
- 110.00: A psychological resistance level.
- Support Levels:
- 108.00: Immediate support was observed from the recent consolidation.
- 106.50: A deeper support level aligning with previous resistance turned support.
Technical Indicators:
- Relative Strength Index (RSI): Currently at 68, approaching overbought territory but not yet signaling a reversal.
- Moving Averages:
- 50-Week SMA: Trending upward, indicating medium-term bullish momentum.
- 200-Week SMA: Also sloping upward, confirming long-term bullish sentiment.
Fundamental Analysis
The dollar’s rally is largely attributed to market optimism surrounding President Trump’s economic agenda, which includes:
- Tax Reforms: Proposed tax cuts are expected to stimulate economic growth, attracting foreign investment and increasing demand for the dollar.
- Trade Policies: Anticipated tariffs and a focus on domestic manufacturing may lead to inflationary pressures, prompting the Federal Reserve to maintain or even raise interest rates, further supporting the dollar.
- Fiscal Stimulus: Infrastructure spending and other government expenditures are projected to boost economic activity, enhancing the dollar’s appeal.
Market Sentiment
Investor sentiment has shifted towards a “risk-on” approach, with increased demand for dollar-denominated assets.
- Rising Treasury Yields: U.S. Treasury yields have climbed, reflecting expectations of higher growth and inflation under the Trump administration.
- Global Currency Impact: The dollar’s strength has pressured other currencies, with the euro and yen experiencing declines, and emerging market currencies like the Indian rupee reaching record lows.
Probable Scenarios
Bullish Case:
- Break Above 110: A decisive close above this level could open the path towards the 114.00 psychological resistance and potentially higher, indicating continued confidence in U.S. economic policies.
- Sustained Economic Growth: If Trump’s policies effectively stimulate the economy, the dollar may experience prolonged strength.
Bearish Case:
- Failure at Resistance: Inability to breach 110 may lead to a pullback towards support levels at 108.00 or 106.50.
- Policy Implementation Risks: Delays or challenges in enacting proposed policies could dampen investor enthusiasm, weakening the dollar.
Over the DXY is still bullish, traders and investors are upbeat about the Trump presidency and its the reason for the strength in the greenback. Whether this is a buy the rumour sell the news event will be evident once Trump is officially in office on January 20.
