As the US Dollar Index (DXY) hovers around the critical 100 mark, investors are watching closely to see if history will repeat itself. The index has been trading within a sideways trend for the medium and long term, with a recent downtrend from 105 to the 100 level since late July.
Why is 100 so important? Not only is it a significant psychological level, but it has also acted as a major historical support level in the past. On three separate occasions since 2023, the 100 level has served as a safety net for falling prices. The question now is whether it will provide support once again.
Despite the historical significance of the 100 level, the current price action remains bearish with no strong bullish reversal patterns in sight. This suggests a potential for further downside, with the next support level at 99.57 – the July 2023 low. A break below this level would signal a more bearish outlook.
While the Relative Strength Index (RSI) indicates oversold conditions on both daily and weekly charts, it has not yet exited the oversold zone to signal a buy opportunity. Similarly, the Moving Average Convergence Divergence (MACD) has not crossed above its signal line to confirm a buy signal.
In conclusion, while the US Dollar Index is at a critical juncture, investors should exercise caution as a potential reversal is not yet confirmed by price action or momentum indicators. Monitoring for a clear reversal pattern or buy signals from momentum indicators is crucial in determining the future direction of the index.