Economists and market participants are now evaluating how the Federal Reserve will act in response to inflation, which peaked in June 2022 at levels not seen in the last 40 years but has since been declining. Many believe that by the end of the year or the beginning of the next, the Fed will move to lower interest rates, preventing the dollar from strengthening further.
Today, the U.S. dollar is undergoing a correction, and its index, DXY, is declining. At the beginning of today's European trading session and as of writing, DXY was around 102.85, 47 points below the new 10-week high of 103.32 reached on Monday.
Despite this decline, the dollar maintains its positive momentum that began in the middle of the last month and intensified after the Fed's July meeting.
If the DXY index price (CFD #USDX in the MT4 terminal) manages to secure itself above the key medium-term resistance level of 103.10 (200 EMA on the daily chart, 50 EMA on the weekly chart), then, from a technical standpoint, we can expect further growth of DXY towards the nearest local resistance level of 104.65 and then towards the next local resistance level of 105.85.
In an alternative scenario, a break below the support levels of 102.90 (144 EMA on the daily chart) and 102.62 (200 EMA on the 1-hour chart) will signal the resumption of short positions.
A break of the support levels at 102.25 (50 EMA on the daily chart) and 102.00 will direct DXY inside the downward channel on the weekly chart with targets at key support levels of 100.80 (144 EMA on the weekly chart), 100.00, and 99.70 (200 EMA on the weekly chart). A break below the key support level of 99.70 will move DXY into a long-term bear market zone.
Support Levels: 102.90, 102.62, 102.25, 102.00, 101.00, 100.80, 100.00, 99.70
Resistance Levels: 103.10, 104.00, 104.65, 105.00, 105.85