Future Technical Assessment for the US Dollar (DXY) Is Flimsy

VOT Research Desk

Market Analytics and Considerations

• With declining rate forecasts, the US dollar declines.
• A positive backdrop is provided by US Treasury yields on short terms.

According to the most recent 30-day Fed Fund futures price information, the Federal Reserve is anticipated to increase interest rates by a further 100 basis points over the upcoming months, to 475–500bps, and then suspend their tightening cycle. The Fed is anticipated to raise rates by 50 basis points at its summit on December 14 with the remaining 50 basis points scheduled for Q1 2023. The Fed may lower interest rates by 25 basis points at each of its final two sessions in 2023, according to the most recent CME rate likelihood. The US dollar is now more vulnerable as a result of the Fed’s retreat from massive rate hikes—rate increases of 75 basis points have been made at the last four FOMC meetings—and this situation might persist in the future.

Chart – CME Group

Despite diminishing interest rate market forecasts, the short end of the US Treasury market is still mostly well-supported. The yield on the one-year UST is 4.60%, while the return on the two-year is around 4.36%. These rates will provide the US dollar with underlying support because it is doubtful that they would decline significantly in the upcoming weeks.

The US dollar has been under pressure over the past several weeks due to this paring back of rate rise expectations, with the DXY falling more than 6% from top to low this month. On November 10, a previous area of support was successfully broken, turning this level (109.31) into resistance. Between 104.68 and 105.78, a cluster of previous lows and highs with the 200-day simple moving average at 105.00 in the midst, is the next area of support for the dollar. From June 2021, this longer-dated sma has supported the dollar.