The US Dollar Index (DXY) remains under pressure in early Tuesday trading, retreating to 101.60, down 0.19% on the day. The bearish outlook remains dominant as the index fails to regain traction above key technical levels, notably the 100-day Exponential Moving Average (EMA).
This decline comes after a brief surge that saw the dollar touch its highest level since April 10. Despite a partial lift from reduced US-China trade tensions, sentiment toward the greenback continues to lean negative. The brokers at Lesrouleaux provide a comprehensive analysis of this topic in the article.
Macro Context: Weakness Despite Trade Relief
The DXY measures the performance of the US Dollar (USD) against a basket of six major currencies: the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), and Swiss Franc (CHF). The current pullback suggests that broader macro forces — such as slowing US economic momentum, dovish expectations from the Federal Reserve, and global risk appetite — are outweighing temporary boosts, including the reduced risk of a US-China trade war.
The temporary optimism from an evolving tariff agreement between Washington and Beijing has helped ease some geopolitical fears. However, the positive sentiment is not robust enough to overcome prevailing technical pressures and monetary policy expectations that favor a weaker dollar in the second half of the year.
Technical Overview: Bearish Structure Remains Dominant
The technical structure of the DXY continues to point downward, with the index trading below its 100-day EMA, currently situated near 103.35. This reinforces the idea that the bearish trend is still active. Furthermore, the 14-day Relative Strength Index (RSI) hovers near the neutral midline (50), indicating a lack of strong bullish or bearish momentum in the immediate term. However, the failure to bounce decisively from current levels favors a continued downside bias.
Key Support Levels:
- 100.00 (Psychological level): This is the primary support zone to watch. A decisive break below 100.00 could confirm a shift toward a broader bearish cycle.
- 99.23 (May 7 low): A breach of the 100.00 mark would likely lead to a test of this secondary support level, which also coincides with a recent swing low.
- 98.02 (April 22 low): If the DXY continues to deteriorate, this longer-term support becomes the next potential bearish target. A move toward this level would mark a deeper correction and potentially open the path for extended downside moves.
Key Resistance Levels:
- 103.35 (100-day EMA): This remains a crucial upside barrier. Any recovery attempt will likely struggle here unless backed by strong economic catalysts or a sudden shift in risk sentiment.
- 104.31 (April 2 high): Should the index surpass the 100-day EMA, this level serves as the next significant technical resistance.
- 104.71 (March 27 high): A break above this area would likely invalidate the bearish setup and reintroduce a bullish reversal scenario.
Momentum and Trend Analysis
The DXY’s struggle to maintain upward momentum reinforces the view that any rallies are likely corrective, rather than indicative of a new bullish trend. The fact that the RSI remains neutral adds weight to the consolidation bias, but this should not be mistaken for a change in trend. The lack of bullish conviction and persistent rejections near moving averages imply that selling pressure continues to dominate.
Furthermore, the ongoing flattening of the US yield curve, along with speculation over potential rate cuts by the Federal Reserve in late 2025, continues to cap dollar strength. Traders appear cautious ahead of upcoming macroeconomic releases, especially inflation and employment data, which may determine the Fed’s next move.
Risk Factors and Outlook
While there are some supportive tailwinds for the dollar, including temporary geopolitical relief and expectations of relative US economic outperformance, the overriding sentiment remains weak. Traders are also watching developments in the Eurozone and China, as a stronger euro or yuan would weigh further on the dollar index.
From a technical standpoint, the path of least resistance is downward unless the DXY reclaims and consolidates above 103.35. With no strong reversal signals and price action trending toward support, the bias leans toward further weakness.
Conclusion
The US Dollar Index continues to exhibit bearish characteristics, with technical indicators and price action pointing toward further downside risk. The inability to hold above the 100-day EMA underscores the fragility of recent rallies. While the 100.00 support level remains critical in the short term, a break below this psychological threshold would likely accelerate selling pressure and expose lower targets at 99.23 and 98.02.
Traders should monitor upcoming macroeconomic indicators and central bank commentary closely, as these could influence short-term volatility. However, unless there’s a meaningful catalyst to propel the index above key resistance at 103.35, the bearish outlook is likely to persist.
