DXY: the dollar index returns to test major resistance at 107 points

The return/risk pair is once again in favor of sellers of the dollar in the short term after a powerful rebound in the DXY since September.

The dollar benefits from a reduction in expectations of rate cuts to rebound

The dollar price has rebounded strongly since the Fed’s pivot in September, with the DXY index moving from major support at 100 points to key resistance at 107 points (+7%) in two months. The reasons for this major rebound in the dollar are multiple, but it began with a reduction in recession fears thanks to reassuring employment figures in September and even more so in early October when the unemployment rate fell to 4.1 %.

The dollar’s rebound also seems to have been fueled by the growing prospects of Donald Trump’s victory, with operators estimating his program more positive for growth, but also inflation.

Recently, the inflation outlook has also fueled the rise of the dollar following higher-than-expected inflation figures.
All these factors have significantly reduced expectations of rate cuts. While operators anticipated a cut in the Fed’s key rates to around 2.8% by the end of next year, they now only anticipate a rate cut to 3.8%. .

Finally, the recent long-range Ukrainian strikes on Russian territory accentuate geopolitical tensions and Russian threats against NATO, thus fueling demand for safe haven assets, primarily the dollar.

DXY Dollar Weekly Price Chart – Key Levels

The return/risk pair returns to favor sellers of the dollar in the short term

From the point of view of technical analysis, the price of the DXY dollar has been moving up and down for two years in a range between 100 and 107 points. Exiting this price range will in theory set the pace for the future.

Currently at the top of this range, the return/risk pair is technically in favor of sellers again, especially after such a rise in the dollar in such a short time. A short-term breather towards the middle of the range seems most likely before a possible continuation of the dollar’s rise.

In the event of an exit from the top of the range, the symbolic threshold at 110 points will need to be monitored closely, because it corresponds somewhat closely to the euro/dollar parity threshold.

However, the next figures on unemployment and inflation and the evolution of geopolitical tensions will be decisive catalysts for the evolution of the dollar over the coming weeks.