The US Dollar Index (DXY) rose on Friday after earlier losses, but it is still set to end the week lower. It traded near 98.21 after touching a two-week low of 97.72.
Market moves this week included suspected Japanese intervention, Middle East tensions, and fresh trade worries. Trade concerns returned after US President Donald Trump said tariffs on European car imports could rise to 25%.
Daily Chart Outlook
Risk mood improved earlier after reports that Iran sent a new proposal via Pakistani mediators to end the war. Talks remain uncertain due to disputes over Iran’s nuclear programme.
On the daily chart, DXY remains below key moving averages. Resistance is clustered at the 100-day SMA at 98.47, the 200-day SMA at 98.56, and the 50-day SMA near 98.98.
Momentum indicators remain weak, with the RSI in the low-40s and the MACD slightly negative. Support sits near 98.00, while price would need to regain 98.47 and 98.56 before testing 98.98.
The technical analysis section was produced with help from an AI tool.
Policy Divergence Drives The Shift
We recall that back in 2025, the US Dollar Index was facing weakness around the 98.00 level, pressured by trade threats and suspected Japanese intervention. Today, the Greenback is in a much stronger position, holding firm near 104.50 as of May 2, 2026. This sustained strength changes our entire approach compared to what we were seeing over a year ago.
The primary driver remains central bank policy divergence, but the narrative has shifted. While the Federal Reserve has initiated its rate-cutting cycle, recent inflation data, like the 3.4% annual CPI figure from April’s report, is forcing a much slower pace than markets expected. This contrasts with more dovish signals from the European Central Bank, keeping the dollar well-supported on interest rate differentials.
Just as we saw in 2025, currency intervention is again a major factor creating volatility, especially after the Bank of Japan’s confirmed multi-billion dollar efforts last month to defend the yen. These actions cause sharp, unpredictable swings in the USD/JPY pair, which heavily influences the Dollar Index. Traders must be prepared for these sudden bouts of volatility stemming from official actions.
The technical picture has completely flipped from the bearish tone of the past. Those key moving averages that acted as resistance near 98.50 are now far below the market, with the current 50-day moving average near 104.10 now serving as critical support. We are now watching the 105.20 level as the next major resistance zone that needs to be overcome to signal a further leg higher.
Given the uncertain pace of Fed cuts and the risk of further intervention, outright directional bets are risky. We believe the best response is to use derivatives to manage this volatility, such as buying DXY put options to hedge long-dollar exposure against a sudden reversal. Alternatively, strategies that profit from price swings, like long straddles, could be effective in capturing the choppy action we anticipate in the coming weeks.
