The US dollar is stuck in a fairly well-defined range with prior tests of support sparking a sharp move higher and back towards multi-week resistance. The US dollar basket (DXY) has been on a roll over the last few months, pressed higher by rising US Treasury bond yields and growing expectations of a round of interest rate hikes. The latest market expectations suggest that the Fed will hike interest rates by a further 210 basis points this year, with the chair Powell expected to announce larger than normal 50 basis point rate hikes at the May 4th and June 15th FOMC meetings.
The US dollar basket is used to measure the value of the US dollar against six other currencies – Euro, Swiss Franc, Japanese Yen, British Pound, Canadian dollar and Swedish Krona. The Euro currently accounts for nearly 58% of the index, and the single currency remains weak, the Japanese Yen (13.6%) is friendless and falling lower, while Sterling (11.9%) is also under downside pressure. The US dollar’s recent rally is currently taking a breather and looks set to move back to highs last seen in May 2020.
The dollar basket has traded between 97.70 and 99.45 over the past four weeks with both support and resistance tested more than once. These levels have helped and prompted a market reversal on six occasions. The DXY however is in a much longer-dated uptrend off the January 2021 low print at 89.20. This trend remains in place and the current period of consolidation is likely to break higher soon, supported by ever-rising US Treasury bond yields and a weak Euro. Traders may want to see the DXY fade lower before entering any long trade to give themselves a better risk/reward set-up, although this runs the risk of missing the move. Any dip back down to around 98.00 or just below should be looked at carefully.
US Dollar Price Chart April 5, 2022
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