US Dollar Index outlook: Dollar keeps firm tone at the start of the year

Slobodan Drvenica Windsor Brokers

US Dollar Index

The dollar index kept firm tone and hit new two year high on the first trading day of the new year, as markets started to gain pace after a quiet holiday mode.

The dollar gained over 7% vs the basket of major world currencies in 2024, following strong swings up and down during the first three quarters of the year and strong acceleration higher in the last three months.

US monetary policy and inflation were among key drivers of the dollar, with its safe-haven appeal during turbulent period of geopolitical and economic uncertainty, also contributing to dollar’s direction.

The latest shift in monetary policy view from Fed, due to new reality of still elevated inflation and promises from incoming administration of Donald Trump for strong boost of the US economy, sparked strong rally in the last quarter of 2024.

Also, a wide difference in monetary policies between the US and other major economies is expected to continue to underpin the dollar in coming months, along with expectations that economic growth acceleration will boost inflation and probably keep US interest rates unchanged, against Fed’s promises of stronger policy easing earlier this year.

Bullish technical studies on all larger timeframes (Day/Week/Month) contribute to positive short-term outlook (daily/weekly Tenkan-sen is in steep ascend and diverging from Kijun-sen and also creating a bull-cross on monthly chart, while positive momentum remains strong on all three timeframes).

Fresh bulls pressure significant technical resistance at 108.79 (Fibo 61.8% retracement of 114.725/99.20 bear-leg) and firm break here to contribute to strong signals that corrective phase from new multi-year peak (114.72, posted in Sep 2022) might be over that would open way for test of psychological 110 barrier and Fibo level at 111.06 (76.4% retracement).

Minor price adjustments on overbought studies should be anticipated, with 108 zone offering initial support (former top/daily Tenkan-sen) and extended dips to find solid ground at 106 zone (former lower platform of Oct/Nov 2023/broken Fibo 50%) and keep larger bulls intact.

Res: 108.80; 109.70; 110.00; 111.06.
Sup: 108.28; 108.00; 107.51; 107.00.

Author

Slobodan Drvenica

Windsor Brokers

Industry veteran with over 22 years’ experience, Slobodan Drvenica joined Windsor Brokers in 1995 when he was an active trader for more than 10 years, managing the trading desk and own account departments.

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