DXY Analysis & ConsiderationsOverall Trend & Context:
Long-Term Uptrend: The DXY exhibits a clear uptrend from late 2023, indicating persistent USD strength.
Key Levels:
Resistance Zone (109.50 - 110.00): This zone has proven a challenge for the DXY to break decisively. A sustained break above this level is crucial for further upside.
Support Zone (107.00 - 108.00): This zone has provided support during pullbacks.
EMAs (25, 50, 100, 200 - 4-Hour Chart): The DXY is trading above all EMAs, a bullish sign. The 25 EMA is acting as dynamic support, and a bullish crossover (25 above 50) has occurred.
Potential Scenarios & Probabilities:
Bullish Breakout (High Probability) : The bullish EMA alignment favor an upside breakout above 110.00. Increased volume would confirm this scenario.
Pullback to Support/EMAs (Medium Probability) : A pullback towards the support line or the 25 EMA (around 108.80 - 109.00) is plausible, especially given the overbought RSI. This could offer a good long entry opportunity.
Breakdown Below Support (Low - Medium Probability) : A break below the support line and the EMAs would weaken the bullish outlook and could lead to a deeper correction.
Trading Considerations:
xxxUSD pairs - If the dollar goes up we should look for short positions.
USDxxx pairs - If Dollar goes up we can look for long positions.
A pullback to the support zones or the 25 EMA could offer a lower-risk long entry, provided these levels hold and there is sufficient demand on the USDxxx pair you're trading. (technicals should always be prioritized)
Consider placing stop-loss orders below key support/demand levels to manage risk.
Look for increased volume during breakouts or bounces off support to strengthen signals.
Watch for bearish divergence on the RSI as a potential bearish warning sign on the DXY.
Geopolitical Factors:
De-dollarization Efforts: Some countries are exploring alternatives to the US dollar for trade and reserves. While this is a long-term trend, any significant announcements or actions could impact the dollar's value.
Sanctions and Trade Policies: US sanctions and trade policies can influence the dollar's strength, particularly against the currencies of targeted countries. The US imposed tariffs are creating ripples right now.
Let's quickly look at what 'tariffs' are -
By now you should all know about the US imposed tariffs on several major trading partners including China, Canada and Mexico (and that they've retaliated with their own tariffs on US goods).
What does this all mean?
In the US any goods that are imported from Canada for example, will now cost more to the general public. To put it simply, the US is now charging a "handlers fee" and that will increase the overall price.
These tariffs are intended to encourage these countries to change their trade practices.
The tariffs have disrupted global supply chains, increased costs for businesses, and created uncertainty.
Make no mistake, this is without a doubt, a trade war.
Potential Impacts on the US Dollar:
Positive Impact:
Safe-haven demand: Increased global economic uncertainty due to the trade war could drive investors towards the US dollar as a safe-haven asset, increasing demand and its value. People will flock to the take no s#it protocols implemented by the Trump administration.
Reduced imports: If tariffs lead to a significant decrease in US imports, there could be less demand for foreign currencies to purchase those imports, indirectly increasing demand for USD. This means that trade conducted by the US will increase the overall Dollar output - thus making it seem more valuable. (If we assume the Trump administration is playing petty games, we're badly misinformed, we should assume that these are well calculated risks)
Negative Impact:
Reduced US exports: Tariffs can make US goods less competitive, leading to a decrease in exports. This can reduce foreign demand for USD, as fewer foreign buyers need dollars to purchase US goods.
Economic slowdown: The trade war could negatively impact economic growth in the US and globally. A slowdown in the US economy could make the dollar less attractive to investors.
Retaliatory tariffs: If other countries retaliate with their own tariffs on US goods, it can further dampen US exports and reduce demand for the dollar.
Trade Wars and Uncertainty:
The uncertainty and potential for escalation associated with trade wars can negatively impact investor confidence and lead to a flight to safety. While the USD is often seen as a safe haven, extreme uncertainty could lead investors to seek other safe-haven assets or reduce their overall exposure to USD (Right now Gold is something you should be looking into as a trader and investor).
Final Notes:
The technical picture is strong and does favour a breakout. But the geopolitical risks reduce the probability. Be prepared for fundamentals to override technicals in the short term.
Given the heightened risks, traders should be cautious and wait for clear confirmation signals before taking positions.
Closely follow news related to the debt ceiling, economic data, and geopolitical events.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Trading involves substantial risk and may not be suitable for all investors. Conduct your own research and consult with a financial advisor before making any investment decisions.
