Dollar Correction Follows Recent Gains
The US Dollar Index (DXY) moved lower on Tuesday after reaching monthly highs, retreating toward the 101.30 area as investors reassessed market conditions.
The decline came after three consecutive daily gains, with the index facing strong resistance in the 101.60 to 101.70 range, near its yearly peak of around 101.80 reached in late June.
Despite the pullback, the dollar continues to trade above its key 200-day simple moving average, maintaining a constructive short-term outlook and leaving room for further gains.
Oil Prices and Lower Inflation Concerns Pressure Dollar
Improving conditions in the Middle East have contributed to a sharp decline in crude oil prices. West Texas Intermediate (WTI) crude has fallen for three consecutive sessions, breaking below the key $80 per barrel level and reaching its lowest point in two weeks.
The drop in oil prices has also reduced concerns about renewed inflation pressures, allowing US Treasury yields to continue their recent decline. Investors are closely watching developments ahead of the Federal Reserve’s upcoming Federal Open Market Committee (FOMC) meeting.
The Federal Reserve is widely expected to maintain interest rates at current levels, keeping the Federal Funds Target Range unchanged at 3.25% to 3.75%.
Market attention is expected to focus on inflation discussions, particularly following softer-than-expected June consumer price data and easing geopolitical tensions that could limit future pressure on consumer prices.
Economic Data Adds Pressure on the Dollar
In the United States, weaker-than-expected consumer confidence data from the Conference Board contributed to the dollar’s decline.
Investors are also awaiting the American Petroleum Institute’s weekly crude oil inventory report, followed by official inventory data from the Energy Information Administration (EIA) on Wednesday.
Technical Outlook for the US Dollar Index
The US Dollar Index is trading around 101.29, with the short-term trend remaining positive. The index remains above the 55-day, 100-day and 200-day moving averages, which are positioned between approximately 99.1 and 100.3 and continue to support the broader upward trend.
Momentum indicators remain supportive, with the 14-period Relative Strength Index (RSI) at 57, suggesting continued positive momentum without signs of excessive buying. The Average Directional Index (ADX) near 26 indicates a moderate but active trend.
Key Support and Resistance Levels
On the upside, resistance is located near 101.98. A daily close above this level could open the door for additional gains.
On the downside, initial support appears around 100.64 and 100.39. A deeper decline could target the 99.50 region, followed by the 55-day moving average near 100.30 and the 100-day moving average around 99.72.
A break below these moving averages would expose longer-term support areas near 97.62 and the mid-95.00 range.
