DXY index forecast as the US dollar crossed a key resistance

on Jul 6, 2022
  • The US dollar index jumped above an important resistance level.
  • It rose above the highest point in 2016, signaling that bulls are in control.
  • The DXY index will continue with its upside ahead of FOMC minutes.

The DXY index is surging as investors embrace the US dollar’s role as a safe haven. The US dollar index surged to the highest level since October 2002. This means that the currency has surged by more than 52% from its lowest level during the Global Financial Crisis (GFC).

Why is the dollar index rising?

The US dollar is the most important currency globally because it is the reserve currency for most countries. Therefore, investors rush to its safety in a period of high volatility, For example, the dollar surged hard at the onset of the Covid-19 pandemic.

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Now, the DXY index is surging as investors rush to its safety as fears of a recession rise. A recent report by the WSJ warned that the likelihood of a recession had risen to over 40% for the first time in more than a decade.

The greenback is also surging as investors react to the extremely hawkish stance by the Federal Reserve. In its bid to fight inflation, the Jerome Powell-led bank has embraced a more combative tone. 

For example, the bank has already hiked interest rates by 150 basis points this year. It has also hinted that it will continue raising rates several times this year. Analysts expect that it will hike rates by about 75 basis points later this month.

The US dollar index has surged as currencies in the index tumble. For example, the EUR/USD pair has tumbled to the lowest level in 20 years as concerns about a recession in the region remain. Further, the Japanese yen has dropped to the lowest point in over 24 years. The Canadian dollar, sterling, and Swedish krona have also tumbled. 

The next key catalyst for the DXY index will be the upcoming FOMC minutes. These minutes will provide more color about the upcoming rate decision.

DXY index forecast

US dollar index

The monthly chart shows that the DXY index has been in a strong bearish trend in the past few days. Now, it has managed to move above the key resistance level at $103.78, which was the highest point in December 2016. 

Therefore, by moving above this level, it sends a signal that bulls are in control. As a result, the upward trend will likely continue as bulls target the key resistance at $106.97. The upward trend will be invalidated if the price manages to move below the support at $103.78.

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