- The DXY Dollar Index gains traction around 101.25 in the early European session on Wednesday.
- The DXY maintains the bearish outlook below the key 100-day EMA, but the RSI shows neutral momentum.
- Initial support level is seen at 100.68; The first bullish barrier is located at 101.30.
The US Dollar Index (DXY) extends the rally to near 101.25 during the early European session on Wednesday. Caution in the market amid rising tension in the Middle East and reduced expectations of a 50 basis point (bp) rate cut by the Federal Reserve (Fed) in November could underpin the DXY in the short term.
Based on the daily chart, the negative outlook for DXY remains intact as the index remains below the key 100-day EMA. However, further consolidation appears favorable as the Relative Strength Index (RSI) is situated around the midline, indicating neutral momentum for the DXY.
The first bearish target for the US Dollar emerges at 100.68, the October 1 low. Further south, the next level of containment lies at 100.23, the lower boundary of the Bollinger Band. The crucial support level to watch is the psychological level of 100.00.
To the upside, the Bollinger Band upper boundary at 101.30 acts as immediate resistance level for DXY. A decisive break above this level will expose 101.84, the September 12 high. Extended gains will see a rally to 102.73, the 100 day EMA.
The US Dollar FAQs
The United States 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 in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions. After World War II, the USD took over from the pound sterling as the world’s reserve currency.
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
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 into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of 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 of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
