So don’t let anyone fool you, the dollar is not doing that great! The DXY index has registered three consecutive closes above its 21-day moving average. This resurgence reflects a growing confidence in its trend lines as the dollar quietly reasserts itself in the global market. Analysts are already speculating about a subsequent rate cut as early as September. This shift in monetary policy would further empower the dollar.
This week, we see signs that the dollar is finally recovering its ground after a prolonged period of suffering and narrowly avoiding catastrophe. Having just experienced a major correction of 10% in half-a-year’s time, the dollar has regained some composure. Right now, it appears to be an opportunity for progress. This invigorated momentum comes as the dollar continues to show unexpected strength amid a rapidly shifting economic landscape.
The current global economic landscape is marked by a tale of two economies. Germany’s economy has been rolling in reverse, while China’s stimulus efforts have frequently misfired. Meanwhile, the United States is starting to experience a pickup in growth momentum, having trailed most of its international peers for some time. This huge shift has undoubtedly had a positive effect on U.S. growth, restoring growth to the middle of the global pack. Consequently, the dollar’s attractiveness has surged.
These are developments that market analysts are watching very carefully, especially considering how well the DXY has been performing as of late. The index is already leaning into trend lines with tactical confidence, implying a possible coming bullish phase for the currency itself. A cut in September would certainly accelerate this positive trend. This is particularly the case if it happens in parallel with a run of good economic news.
Despite the dollar’s recent challenges, including the notable decline earlier this year, its current stability offers an opportunity for cautious optimism among investors. With the market in a constant state of flux, many experts are recommending avoiding high conviction short positions.
“Don’t be short over your skis.” – Source not explicitly mentioned
The U.S. dollar’s demonstrated capacity for recovery from past crises puts it in a class of its own on the global stage. That’s why investors need to expect and plan for a risk-off tone to guide their next move. Once implemented, this strategy should bear great fruit, and particularly as the dollar continues to strengthen with foggy economic indicators from abroad.