The US Dollar Index (DXY) has resumed its weekly uptrend, showcasing resilience despite recent fluctuations. Following a dip after Inauguration Day on January 20, the DXY regained momentum, climbing from six-week lows below the critical 107.00 support to multi-day highs beyond the 108.00 barrier toward the end of Wall Street's closing bell. This resurgence indicates potential for further gains, possibly retesting its recent cycle high of 110.17 from January 13.
The DXY's upward movement highlights a potential challenge to the 2022 peak of 114.77, recorded on September 28, should it break past the 110.17 resistance level. The daily Relative Strength Index (RSI), now above 51, suggests increasing upside potential. However, the Average Directional Index (ADX), which remains below 22, indicates weak trend strength, suggesting that the current rally might lack conviction.
Despite President Trump's ambiguous trade policies, market analysts predict that the DXY's weakness will be temporary and shallow. The index is expected to maintain a constructive outlook throughout the year, buoyed by stronger underlying factors that lend support to the US Dollar. This expectation aligns with the DXY's strategic support levels at 106.96 (January 24) and 105.42 (December 2024), as well as a critical 200-day Simple Moving Average (SMA) at 104.77.
The DXY encountered a setback immediately following Inauguration Day on January 20, extending its rejection from recent cycle tops beyond the key 110.00 hurdle established on January 13. However, it staged a significant comeback from Monday's six-week lows just below the 107.00 support level, advancing to multi-day highs north of the 108.00 mark by the end of Wall Street's trading session.
Market participants remain cautiously optimistic about the DXY's prospects, given its potential to extend upward momentum and retest the recent cycle high of 110.17 from January 13. A successful break above this level would pave the way for a challenge of the 2022 peak at 114.77, marked on September 28. This scenario hinges on overcoming existing resistance levels at 110.00 and further at the historical high of 114.77.
The daily RSI's upward trajectory above 51 points to growing upside potential for the DXY, reinforcing expectations of continued strength in the near term. However, the ADX's positioning below 22 suggests that the current rally may lack sustained momentum, indicating possible volatility in the DXY's path forward.
Economic analysts highlight that despite President Trump's failure to provide clear direction on trade policies, the DXY is likely to sustain only temporary and shallow weakness. Stronger underlying economic factors are anticipated to support the US Dollar throughout the year, fostering a constructive outlook for the index.