The US Dollar Index (DXY) continued its strong rebound this month and is now hovering near its highest point since May 29. It has jumped by over 4% from the year-to-date low and technicals suggest that it has more upside.
US Dollar Index technical analysis
The daily timeframe chart shows that the DXY Index has rebounded in the past few weeks. It has jumped from a low of $96.37 to $100.20 today.
Technical analysis suggest that the index has more upside to go in the coming weeks. It has formed a double-bottom pattern whose neckline is at $100.20. This is one of the most popular bullish reversal patterns in technical analysis.
The index has moved above the 23.6% Fibonacci Retracement level at $99.62. It has moved above the 50-day and 200-day Exponential Moving Averages (EMA), and the spread is narrowing, a sign that it is about to form a golden cross pattern.
The Relative Strength Index (RSI) and the Stochastic Oscillator have continued rising in the past few months. RSI has moved to 65, while the Stochastic Oscillator has moved above 80.
Therefore, the index will likely continue rising as bulls target the 50% Fibonacci Retracement level at $103.28, which is about 3.20% above the current level. On the other hand, a move below the support at $99 will invalidate the bullish outlook.
Why the DXY Index is rebounding
The US Dollar Index continued its strong uptrend as concerns that led to its crash earlier this year ease. For example, the impact of Donald Trump’s tariffs have now waned in the past months now that the US has reached deals with most countries.
It has already reached a deal with China, one of its biggest trading partners. The deal lowered the existing tariffs and a commitment that China will continue supplying rare earth materials to the United State. China has also restarted purchases of US agricultural products like soybeans and corn.
Second, the risk that Donald Trump would fire Jerome Powell from the Federal Reserve has faded in the past few months. Odds of his firing have plummeted on Polymarket. Instead, market participants are waiting for him to name the next Fed Chair in 2026 when Powell’s term ends.
Third, the US Dollar Index has jumped as the odds of interest rate cuts in the United States fall. Data compiled by Polymarket shows that odds of a cut have jumped to 70% from this month’s low of 50%.
The main concern is that divisions have emerged in the bank, with some officials warning that they oppose another cut in December citing the elevated inflation. On the other hand, some officials have supported cuts, citing the labor market, which has remained under pressure.
Therefore, the decision to either cut rates or leave them unchanged will depend two officials in the next meeting.
Looking ahead, the US Dollar Index will react to some notable macro data this week, including consumer confidence, pending home sales, and house price index data.
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