Analyzing the US Dollar Index (DXY) Trends
The US Dollar Index (DXY) is currently trading around 100.35 in the early European session on Wednesday. Let’s delve deeper into the factors influencing its movement:
The Market Scenario
- The DXY is facing pressure due to improved risk appetite following Chinese stimulus plans and expectations of a significant interest rate cut by the US Federal Reserve in November.
- Traders are awaiting the US New Home Sales data for August and a speech from the Fed’s Governor Adriana Kugler for further market direction.
Technical Analysis
On a technical level, the DXY remains bearish as it stays below the key 100-day Exponential Moving Averages (EMA). The Relative Strength Index (RSI) confirms this bearish sentiment, standing below the midline near 35.65.
- A break below the support level at 100.25 could lead to a decline towards the psychological level of 100.00, with further downside targets at 99.74 and 99.57.
- On the upside, resistance is seen at 101.23, followed by 101.84 and a significant barrier at 102.00-102.05.
Insights into the US Dollar (USD)
The US Dollar (USD) is the world’s most traded currency, accounting for over 88% of global foreign exchange turnover. Here are some key points about the USD:
Historical Significance
- After World War II, the USD replaced the British Pound as the world’s reserve currency.
- It was backed by Gold until the Bretton Woods Agreement in 1971.
Impact of Monetary Policy
- The Federal Reserve (Fed) shapes monetary policy to control inflation and foster employment.
- Interest rate adjustments by the Fed play a crucial role in determining the USD value.
Quantitative Easing and Tightening
- QE involves the Fed printing more Dollars to buy US government bonds, leading to a weaker USD.
- QT is the reverse process where the Fed stops bond purchases, usually resulting in a stronger USD.
Understanding these factors can provide insights into the movements of the US Dollar and its impact on global financial markets.