Introduction
The U.S. Dollar Index (DXY) is currently testing a key support zone between 106-107, following a pullback. The dollar remains in a strong uptrend, trading well above the 100-week SMA (104.261).
As of today 28/02/2025, DXY is trading at 107.775, up +0.69%, showing signs of stabilization after the recent pullback. If the 106-107 support zone holds, another move toward 110+ could be in play.
Market Drivers & Key News Events
While the dollar remains at the center of global financial markets, other fundamental forces are also driving price action across equities, commodities, and crypto.
1. Sticky Inflation & Federal Reserve Policy
- Recent CPI (Consumer Price Index) data came in higher than expected, signaling that inflation remains persistent despite the Fed’s efforts to cool it.
- Fed rate cut expectations have been pushed further out—markets initially expected cuts to begin in mid-2025, but with inflation still elevated, the Fed may delay easing, supporting the dollar.
- Fed speakers remain cautious, with Chair Jerome Powell signaling a data-dependent approach rather than committing to a clear timeline for cuts.
2. Rising Treasury Yields Pressuring Risk Assets
- U.S. Treasury yields have been climbing, with the 10-year yield pushing higher, attracting capital flows into the dollar.
- Higher yields make U.S. assets more attractive, boosting demand for the dollar and weighing on risk assets like stocks and crypto.
3. Equity Market Weakness & Risk-Off Sentiment
- Global stock markets have turned lower, with major indices like the S&P 500 and NASDAQ breaking below key trendline supports.
- Tech stocks have been under pressure, with investors rotating into defensive sectors—this shift has strengthened the dollar as a safe-haven asset.
- Geopolitical tensions in Europe and the Middle East are also fueling a flight to safety, further benefiting the dollar.
4. Crypto & Commodities Facing Headwinds
- Bitcoin futures (BTC1!) have pulled back from recent highs, as risk sentiment shifts. The dollar’s strength could put more downside pressure on crypto if this trend continues.
- Gold (XAU/USD) is consolidating below recent highs, as the stronger dollar caps further gains. If the dollar resumes its uptrend, gold could face further selling pressure.
Technical Outlook
Dollar Testing Key Support—Bullish Reversal Possible
- DXY remains in an uptrend, but the 106-107 support zone must hold to avoid further downside.
- The 100-week SMA (104.261) remains well below price, confirming the broader bullish trend.
- MACD is starting to turn bearish, indicating some downside risk if support fails.
Key Support & Resistance Levels
- Resistance Levels:
- 110.00 (Psychological Level & Next Upside Target)
- 114.789 (All-Time High Target if Momentum Resumes)
- Support Levels:
- 106-107 (Current Support Zone – Key for Bulls to Defend)
- 104.261 (100-Week SMA – Must Hold for Long-Term Bullish Structure)
If the dollar holds 106-107, a rebound toward 110+ could be in play. However, a breakdown below 104.261 would suggest a deeper correction ahead.
Bull & Bear Scenarios
Bull Case: Rebound from 106-107 & Move Toward 110+
- If DXY holds current support, a move toward 110.00+ could follow.
- Continued risk-off sentiment & higher yields would provide further upside momentum.
Bear Case: Breakdown Below 106, Risking Drop Toward 104.261
- If support fails, price could correct lower, with the 100-week SMA (104.261) as the next key level.
- A shift in Fed expectations toward more aggressive rate cuts would weaken the dollar.
Final Outlook
- Short-Term (1-2 Weeks): Neutral to bullish, watching if price holds 106-107.
- Medium-Term (1-3 Months): Bullish above 106, targeting 110.00.
- Long-Term (6+ Months): Still bullish unless price falls below 104.261.
