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Asset Watch

US Dollar Index Price May Break Below Key Levels

 

Wednesday, July 05, 2023

US Dollar Index (DXY) – Chart and Analysis

• Markets await more clarity from the Fed
• DXY Price develops a bearish continuation pattern

Today, investors are eagerly anticipating the release of the FOMC minutes, seeking further insights into the factors that led to the decision to pause the rate hike in June. Despite inflation levels remaining higher than anticipated, the Federal Reserve chose not to proceed with raising interest rates during their June meeting. As a result, the markets have been seeking an explanation as to why the FOMC members opted against further rate hikes if they still perceive inflation levels to be elevated.

The financial markets anticipate that the Federal Reserve will resume its rate hikes during the upcoming session this month, with a projected increase of 25 basis points, and this rate hike has already been priced in. However, investors have yet to incorporate any pricing for a second rate hike taking place later this year, as they await further economic data. A significant data release is scheduled for this week, which will play a crucial role in evaluating whether the Federal Reserve might consider a 25 or 50 basis point hike in 2023.

US Dollar Index (DXY) – Daily Price Chart

 

Chart source: TradingView

In mid-February, the dollar index price corrected higher and started a sideways move developing a descending triangle pattern. Therefore, the price may retreat in the medium term towards 96.51 if it breaks and continues to trade below the lower line of the aforementioned triangle located at 101.16.

 

By the end of June, the price closed above the 50-day SMA and moved to the trading zone 102.91- 106.31. Thus, the price could trade towards the high end of the mentioned trading zone. It should be noted that if the price breaks and closes above the upper trendline of the descending triangle, which is currently situated at 103.60, it would render the descending triangle pattern invalid.

 

On the other hand, a daily close below the low end of the trading zone could encourage some traders to press towards the low end of the descending triangle situated at 101.16. That said, the support level at 101>69 should be kept in focus.


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