Immediate Resistance and Support Levels

The US Dollar Index (DXY) is holding steady around 97.40 after three days of losses. A downward trend is visible on the daily chart, indicating a bearish outlook, as the DXY is below the nine-day EMA. The DXY could find support at $96.38, which is a three-year low reached on July 1. If it drops further, the DXY might hit the lower boundary of the channel at 95.00. The immediate resistance is at the nine-day EMA level of 97.83, with further resistance at the channel’s upper boundary of $98.30. If it breaks through these levels, the DXY may reach the 50-day EMA at 98.63, moving toward a two-month high of $99.42. In percentage terms, the dollar is strongest against the Euro but shows only slight changes against other major currencies. The base currency is listed on the left, with the quote currency at the top. For example, a change from the US Dollar to the Japanese Yen indicates a shift of -0.11%. This information should not be taken as advice to buy or sell. All risks are your own, and you should conduct thorough research before making any decisions. There is no guarantee of accuracy or timeliness, and no specific investment advice is provided.

Strategic Positioning and Risk Management

Given the ongoing bearish trend in the descending channel, we are preparing for further weakness in the dollar in the near term. We believe that buying put options on dollar futures or related currency ETFs is the most effective strategy. Our initial target for these positions is the support level at 96.38. Recent data supports this view; the University of Michigan’s Consumer Sentiment index dropped to a six-month low of 69.1 in May 2024, indicating rising economic pessimism. This weak sentiment makes a decline to the channel’s lower boundary at 95.00 a likely scenario. We will monitor options volatility closely, as it may signal a faster downward movement. However, we must stay alert for a potential reversal, especially since ongoing inflation keeps the Federal Reserve with a “higher for longer” policy. A clear break above the immediate resistance at the nine-day EMA of 97.83 would prompt us to close our bearish positions. At that time, we would consider buying call options in anticipation of a recovery toward the 98.30 resistance level. Historically, crowded trades in the dollar can reverse suddenly, leading to sharp moves. The latest CFTC data from late May 2024 shows a decline in speculative net-long positions on the dollar, indicating that market conviction is waning, though a short squeeze remains possible. Therefore, we prefer the defined risk of options over directly shorting futures contracts. The dollar’s strength against the Euro shapes our strategy for specific currency pairs. If the index weakens as anticipated, we expect the EUR/USD pair may struggle compared to other currencies. As such, we will focus our bearish dollar strategies on pairs like USD/JPY, which recently showed a change of -0.11%, to capture potentially larger moves. Create your live VT Markets account and start trading now.

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