The US Dollar Index (DXY) is now meandering in a range just under the 104.50 level. This movement comes on the heels of February’s US Durable Goods Orders data. The greenback index measures the US dollar’s value compared to six key currencies. Of late, it has been under selling pressure following last week’s announcement of a Black Sea ceasefire deal brokered by the United States. Ukraine has been very ready to fulfill the conditions. On the other hand, Russia wants all sanctions on its banks and agricultural companies lifted. Still, amidst these geopolitical tensions, the DXY got a boost when 104.00 found support and prices picked up toward 104.50.
This morning’s release of the US Durable Goods Orders data was enough to catapult the US Dollar sharply higher. This was happening during the second half of trading day. The data did show a large increase in headline orders, up 0.9%. This was a significant result, greater than the expected overall decline of -1% and upwardly revised the previously reported result of 3.2% to 3.3%. This positive economic bellwether has played a large role in maintaining the stability of the DXY in the wake of larger global uncertainties.
Geopolitical Dynamics Impacting the Dollar Index
Yet even the DXY experienced some downdraft as new geopolitical developments were introduced, including a ceasefire deal brokered in the Black Sea. The deal, initiated by the United States, highlights Ukraine’s readiness to adhere to peace terms. However, Russia's demands for lifting sanctions on its banking and agricultural sectors have complicated the situation.
This new global geopolitical backdrop adds a substantial layer of uncertainty, and hence opportunity, to the currency markets. The new ceasefire agreement provides a strong contrast. It hasn’t produced a quick enough solution, since Russia is still playing hardball on sanctions. As these diplomatic negotiations progress, they will surely play a role in determining what direction the US Dollar Index moves in.
The continued flare-up of tensions reminds us of the unpredictable nature of international political turmoil and its impact on capital markets. Investors are still watching all of these developments carefully, looking at possible effects on currency valuations and overall market sentiment.
Technical Analysis: Key Levels and Moving Averages
From a technical standpoint, the DXY is today riding high. It has support at 104.00 and resistance around 104.96, home to the 200-day Simple Moving Average (SMA). This region is considered a key psychological resistance point among traders and analysts, synonymous to the market’s Bermuda Triangle.
Given the continued uncertainty surrounding the global outlook, a strong upward impulse toward the 105.00 level is still possible. The breach of this psychological round number could potentially trigger a rush for buying. If the DXY is unable to defend the floor above the 104.96 area, it will probably retrace back into its trading range established in March. This range is currently between 104.00 and 103.00.
If the index falls below this range’s lower bound at 103.00, it could crash all the way down to 101.90. This would be the movement that signals more downside risks. These technical levels are extremely important for investors looking to take advantage of where the market is headed.
Economic Indicators Supporting Dollar Strength
Those strong economic indicators would in theory support the US Dollar, perhaps most importantly evidenced by last week’s Durable Goods Orders data. Headline new orders surging to 0.9% underscored robust economic activity. This new progress bodes well for the currency’s prospects going forward, particularly considering the prevalent global uncertainties.
Bond markets are in a turmoil at the moment, with US 10-year yields moving near 4.34%. Indeed, expectations are building for more aggressive hikes as the rate differentials between the US and other major economies start to widen again. This growing differential is likely to keep US yields elevated, further boosting the attractiveness of US assets.
The CME Fedwatch Tool is currently indicating an 88.4% probability that interest rates remain between 4.25% and 4.50%. We hope this prediction extends to the soon-to-be-announced meeting of the Federal Reserve in May. Alternatively, the expectation of stable rates creates a supportive backdrop for the US Dollar. It gives them additional cover while investors determine the future path of monetary policy.