The U.S. dollar index (DXY) is not making new monthly lows despite signs of less tightening from the Fed!
In case you missed yesterday’s headlines, you should know that the highly-anticipated U.S. CPI report showed the headline inflation slowing down from 6.0% to 5.0% y/y in March.
Meanwhile, the release of the FOMC’s latest meeting minutes confirmed speculations that the recent banking crisis has made at least a few Fed members think twice about their plans to aggressively tighten their monetary policies to rein in inflation.
So, if inflation is slowing and the Fed isn’t as hawkish as it was in the past few months, then why hasn’t the U.S. dollar index made new monthly lows yesterday?
U.S. Dollar Index (DXY): 1-hour
U.S. Dollar Index (DXY) 1-Hour Forex Chart by TradingView
DXY did see a sharp selloff, but the U.S. dollar found enough support at the 101.50 April lows to stem further losses.
Does this mean that the dollar is done with its downtrend?
Technical analysis is supporting an upside action as price hangs out near a previous support zone.
Even Stochastic is favoring a bit of buying while it’s showing an “oversold” signal on the 1-hour time frame.
Last but not least, the 100 SMA is now above the 200 SMA, something that hasn’t happened since we saw a bearish crossover in early March.
While the SMAs aren’t pointing to a directional movement yet, the lack of direction could support a range-y price action for DXY in the next trading sessions.
With not a lot of top-tier reports to look forward to, I’ll be keeping closer tabs on risk sentiment.
Focus on global economic growth and geopolitical tensions between the U.S. and China could drive traders back to safe-havens like USD and JPY.
But if the markets dwell on the major central banks ending their tightening cycles, then we could see risk-taking that could drag DXY to new April lows.
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