US Dollar Index Struggles Amid Fed Rate Speculation and Tariff Concerns

The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of six major currencies, regained some lost ground on Tuesday, reaching nearly 103.60 during the early European session. However, the potential for further gains appears limited due to concerns over the economic impact of former US President Donald Trump’s tariff policies. Investors fear that these tariffs could lead to a broader economic slowdown, restricting the Greenback’s upward movement.

Federal Reserve Decision and Bearish Indicators Shape the US Dollar’s Outlook

The US Federal Reserve’s interest rate decision on Wednesday is a key event for the markets. While no change in rates is expected, traders are closely monitoring the Fed’s stance on future rate cuts. According to the CME FedWatch tool, market participants have priced in a nearly 60% probability of rate cuts, with expectations for at least two reductions by the end of the year. The Fed’s policy direction could have a significant influence on the USD index’s trajectory.

From a technical perspective, the DXY remains under bearish pressure as it continues to trade below the 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is also reinforcing this downward trend, standing at 31.50, which is below the neutral midline. These indicators suggest that sellers still have control over the market in the near term, potentially leading to further declines in the index.

Key Support and Resistance Levels That Could Determine the USD Index’s Direction

The initial support for the USD index is located at 103.35, the low recorded on March 17. If the index falls further, it may find additional support at 102.20, which aligns with the lower boundary of the Bollinger Band. A further drop could bring the index down to 100.53, the lowest level seen on August 28, 2024. These support levels will be crucial in determining whether the USD index can stabilize or continue its downward trend.

On the upside, the first resistance level for the DXY is at 104.10, the high recorded on March 14. A breakthrough above this level could open the door for further gains toward 106.15, which coincides with the 100-day EMA. If the index continues to rise, it may test 107.38, the high reached on February 19. A decisive move above this resistance level could signal a stronger recovery for the US Dollar.