United States Dollar Index: DXY bulls have the upper hand above 101.60 pivotal support
- DXY extends its corrective pullback from an 18-month high for the second straight day.
- The hawkish Fed and geopolitical risks help limit the downside for the safe-haven buck.
- The bullish technical setup backs the case for the emergence of dip-buying at lower levels.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, extends the previous day's retracement slide from the vicinity of an 18-month high and attracts some sellers for the second straight day on Friday. The index, however, lacks bearish conviction and holds above the 101.60 pivotal support during the early European session.
President Donald Trump said that the US will not launch an attack on Iran before November 3midterm elections, which, along with soft crude oil prices and a well-received 30-year bond auction, triggered a corrective decline in US bond yields on Thursday. This, in turn, prompts US Dollar (USD) bulls to take some profits off the table. Meanwhile, the geopolitical risk premium remains in play amid the US-Iran standoff over Tehran's nuclear program. Apart from this, the US Federal Reserve's (Fed) hawkish outlook contributes to limiting the downside for the DXY.
From a technical perspective, the index holds above the 101.60 horizontal resistance breakpoint, which now coincides with the 23.6% Fibonacci retracement level of the recent strong rally from the September monthly swing low. Meanwhile, the Relative Strength Index (RSI) around 47.7 hints at neutral momentum after the recent pullback. Moreover, the Moving Average Convergence Divergence (MACD) below zero with a slightly negative reading suggests that bullish structure is intact but upside momentum has cooled. This warrants caution for DXY bears.
That said, a sustained break below the 101.60 pivotal support could expose the denser Fibonacci cluster at 101.03 and 100.55, ahead of deeper structural floors at 100.08, 99.41 and 98.56. On the topside, immediate resistance is located at the Fibo. anchor near 102.55, where the latest swing high might cap further gains for now. Nevertheless, the DXY maintains a bullish near-term bias above the 200-period Simple Moving Average (SMA) on the 4-hour chart at 100.27.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
DXY 4-hour chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.