News & Analysis

US Dollar Index Testing Key Level

31 January 2023 By Mark Nguyen


US Dollar Fundamental Analysis

Recent data indicated that the U.S. economy grew strongly in the fourth quarter which has boosted the Dollar against the Euro. This has supported the Federal Reserve’s hawkish stance in spite of reports that US consumer spending has fallen, and inflation has cooled. According to the Commerce Department, the Consumer Price Index (CPI), the Federal Reserve’s preferred inflation measure, increased 0.1% in November after a similar gain the month before.
With traders eagerly awaiting the Federal Reserve’s guidance for interest rate rises, the Dollar firmed on Monday and distanced itself from an eight-month trough. Despite last week’s eight-month low of 101.50, the U.S. dollar index rose 0.03% to 101.92.

US Dollar Index Technical Analysis

The Dollar Index is currently testing a major support area taken from the weekly time frame, around $101.55. It has been consolidating and testing the area for almost 10 days, strongly suggesting that bulls are starting to take back control of the market after a steady decline of roughly -4% in the last 4 weeks.

In alignment with the weekly analysis, on the daily timeframe, a trend line from the lower lows can be drawn, and from the chart below, the price has recently reached the bottom of the trend line. The price has consolidated for a number of days at the weekly support level mentioned earlier.

The Dollar may potentially climb towards the resistance level at $104, if it remains above and respects the bottom of the channel.

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