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Dollar tests psychological support
After two weeks of dollar weakness, the currency market is experiencing a pullback. The Dollar Index DXY is rising after briefly dipping below the 100 level. This level had already attracted buyers on the dips of 18 September but failed to reverse the trend.
Since the beginning of the year, a move towards or through this level has sparked interest in the dollar and triggered several 4-7% rallies. Obviously, the Bulls are hoping for a new reversal from the support line that has been in place for almost two years.
In addition, a price and RSI divergence is forming on the daily timeframe, with lower price lows corresponding to higher index lows. A bounce or reversal often follows this.
However, we see limited room for a bounce in the dollar, the value is being eroded by monetary easing, as markets are pricing in almost a 60% chance of another 50-point decline in early November after a double dip in September.
At a higher level—on a weekly basis—the index has fallen below its 200-week moving average. A similar break in the ultra-long-term trend occurred in July 2020 and December 2017. In both cases, it was followed by several consecutive weeks of declines of more than 5%.
The RSI dip into oversold territory on these timeframes was not an early reversal signal. Still, it did trigger a prolonged consolidation - the dollar bulls' last hope for the coming months.
By the FxPro Analyst Team
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