The US Dollar Index (DXY) began the week on a weaker note, pulling back from a high reached last Friday. Currently trading just above the mid-98.00s, it shows a slight negative trend and ended a three-day winning streak. The 100-day Simple Moving Average (SMA) is at 98.61, acting as a barrier, with the index slightly below it. If the index moves above the SMA, it could lower current downside risks. Technical indicators show mixed signals. The Moving Average Convergence Divergence (MACD) is below the Signal line but is trending up, which indicates less bearish pressure. The Relative Strength Index (RSI) is at 42.99, pointing to weak momentum, and a push toward 50 is needed for stability.

Influence of Economic Policies on the US Dollar

The US Dollar is the official currency of the United States and makes up 88% of global foreign exchange trades. Its value mainly depends on Federal Reserve policies regarding interest rates. Quantitative easing generally weakens the Dollar by increasing the money supply, while quantitative tightening strengthens it by halting bond purchases. Mail subscriptions and related content, such as expert insights and market overviews, provide additional updates on financial trends. The US Dollar is starting the holiday week on a weak footing, retreating from last week’s highs. The DXY struggles just below the 100-day moving average at 98.61, indicating that the recent three-day winning streak has lost momentum. This weakness is largely due to expectations of a more cautious Federal Reserve, especially after November’s inflation data showed a Consumer Price Index (CPI) of only 2.3% year-over-year. The recent jobs report also showed only 95,000 positions added, which supports the idea that the Fed may cut rates again in early 2026. These factors make holding Dollars less appealing than other currencies.

Strategies for Derivative Traders

For derivative traders, this situation suggests strategies that could profit from more downside or a stable market. Consider buying put options on the Dollar or selling call spreads above the 98.61 resistance level. Implied volatility may increase as traders prepare for the Fed’s first meeting of the new year. It’s also important to note the shift from the aggressive Quantitative Tightening of 2023. The Fed has slowed its balance sheet runoff, diminishing key support for the Dollar. This long-term policy change adds ongoing pressure on the currency. In terms of momentum, the Relative Strength Index (RSI) is below 50 at 42.99, confirming weak buying power. While the MACD shows that bearish pressure may be easing, it has not yet signaled a buy. A sustained move and daily close above the 100-day average is needed to improve this negative outlook. Create your live VT Markets account and start trading now.

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