US Dollar Between Growth and Uncertainty

• Reasons Behind the US Dollar's Rise
• The Federal Reserve's Next Steps
• A Technical Perspective on the US Dollar Index

Reasons Behind the US Dollar's Rise

With the conclusion of the US elections and Donald Trump's victory, the US Dollar Index (DXY) has risen approximately 3.09% over two consecutive weeks, reaching 106.990, the highest level since October 2023. This increase is seen as an initial reaction to Trump’s win, with no other contributing factors, despite the release of US inflation data and Federal Reserve statements, which have reshuffled the cards!

The US Consumer Price Index (CPI) recorded an annual positive reading of 2.6%, higher than the previous rate of 2.4%. This reading is considered positive for the US dollar, according to analysts.

The Federal Reserve's Next Steps

As for the Federal Reserve, only one meeting remains in 2024, scheduled for December 17-18. Expectations point to a 25 basis point interest rate cut. However, recent Federal Reserve statements have hinted at slowing the pace of rate cuts and the possibility of holding rates steady starting in 2025 as a preemptive measure to address potential inflationary concerns. These concerns could arise due to Trump’s policies, particularly his focus on raising tariffs on China and other countries.

Based on the above points, all indications point to a potential long-term rise in the US dollar. To recap, these include Trump’s return to office, inflationary fears, and the slowing pace of interest rate cuts!

Does Technical Analysis Align with Fundamental Analysis?

• On the daily timeframe, the US Dollar Index is trading in a general uptrend. Pullbacks to the 105.200 and 104.715 levels are seen as ideal for continuing the upward trend and ending the correction, according to analysts.
• On the 4-hour timeframe, the Dollar Index fell below the 106.255 level and closed a candle below it, signaling a medium-term trend reversal from bullish to bearish. Targets are set at 105.200 and 104.715. However, the bearish trend on the 4-hour timeframe will only reverse if the index breaks above the 106.990 level and establishes a new high, according to analysts.

Figure1: Dollars Index, Daily, Trading View