The DXY recently experienced its most volatile week on record. This instability has been primarily driven by the continued political paralysis in Washington, causing increasing concern over consumer sentiment and confidence in U.S. governance. Traders remain on edge as the government shutdown drags on. The DXY needs to clear above the 100.00 area to remove its bearish bias. The second straight month without an official labor report adds more uncertainty to the Federal Reserve’s policy direction. This lack of clear thinking and direction is ramping up volatility in the currency markets.
Many market analysts are predicting a short-term rebound for the DXY. The latter will be true as long as it holds above the important support level of 99.40 and manages to recapture the 99.80-99.90 area. If the shutdown isn’t resolved with haste, then count on the market staying range-bound to bearish. This trend will continue, at least until the middle of November.
Political Factors Impacting the Dollar
The continued political abyss in Washington is taking a toll far beyond good government. Now it is beginning to affect the stability of the U.S. Dollar. Negotiations are still ongoing, and this failure to make progress is taking a serious toll on consumer sentiment. Consequently, traders are becoming more and more disillusioned with the so-called “strength” of the U.S. economy.
Evenso, analysts caution that the government needs to end its shutdown as soon as possible. Absent that though, the DXY will presumably remain in a medium/long-term bearish trend. This ultimately creates doubt about the soundness of the Federal Reserve’s decisions surrounding interest rates and broader economic policy. That’s because the official labor report is delayed by two months.
Party leaders appear to be treating the ongoing political gridlock as a tactical ploy. They hope to use this undeserved, self-inflicted crisis to score political points in the 2026 midterm elections. This act of political brinkmanship could have lasting effects on the conduct of monetary policy and confidence in the markets.
Technical Analysis of DXY
In order for the DXY mascot to avoid doom, it would have to retake 100.00. It needs to end above 100.20 to change its present downside momentum. If it doesn’t live up to the hype, then traders can expect to see even deeper losses. They’ve targets defined at 99.30, 99.10 and 98.80 which are consistent with the structural lows from October and previous liquidity zones.
Traders are now watching the same important levels, especially 99.40, which provides a very important retest support level. If the price cannot maintain above this level of resistance, it will indicate a resumption of the downtrend. A four-hour close beneath this level will have sellers poised to continue to tighten the noose around this market.
To the downside, a new bearish order block has developed between 99.80 and 99.90. This means that downside pressure will almost certainly swell, should prices remain under these areas. Therefore, this zone represents a key test for any DXY recovery hopes. That’s not the only way it will affect traders’ strategies over the next few weeks.
Market Outlook and Expectations
With the government shutdown not showing any signs of ending right now, market analysts expect that negative sentiment about the DXY will persist. The index’s short-term targets are still at 100.00, 100.20 and 100.30—prior highs and mid-range Fair Value Gaps (FVG).
Second, traders are reacting positively to some tentative signs of progress in Washington on a short-term funding deal. They stay doubtful of any major dollar rebound until something more tangible is done. Political uncertainty now looms over the country’s economic fundamentals. Many analysts expect the DXY to remain rangebound.