US Dollar Index technical and fundamental analysis

US Dollar Index Fundamental Analysis

A hard-fought tug-of-war between bulls and bears played out on the DXY Index after U.S. inflation data crossed the wires. A knee-jerk reaction caused the greenback to plunge, but eventually it was able to recover and move into positive territory due to higher Treasury yields (DXY +0.10% to 103.41).

However, a bearish USD outlook is held by economists at Bank of America Global Research, who see a mild recession in the USA for this year as fed cuts to begin only in March 2024.

“We expect a mild recession starting mid-2023 and Fed cuts to begin only in March 2024. For 2023, the market expects a much milder recession, with the Fed still hiking rate 1-2 more times before slightly cutting rates in second half of the year.”

“For now, we still hold a bearish USD view for the medium term; 2023 playing out in line with leading indicator historical precedents would increase the upside risk to our bearish USD outlook.”

US Dollar Index Technical Analysis

The US Dollar index has been trading in a range between $102.6 to $104 for the last 7 days. At the time of writing, Dollar Index is currently trading at $103.93, which is a major level of resistance where price has fallen significantly from in the past (Jan 2017).

As seen in the photo below, it shows that price has come up to test this trend line that can be clearly seen on the daily time frame, paired with the consolidation, if this daily candlestick closes below $104 there could be a high probability of the US dollar continuing with its higher time frame downtrend.

A break above this trend line however could indicate a move to the upside.