Key Takeaways
- The U.S. index of the dollar hit a low of three years on Monday amid investor concerns over tariffs, the economy outlook and possible threats against Federal Reserve independence.
- The index rallied after breaking out from a descending triangle last October, but has since fallen below the pattern's lower trendline to confirm a bull trap.
- Investors should watch crucial support levels on The U.S. dollar index's chart around 95 and 90, while also monitoring key resistance levels near 101 and 107.
The U.S. dollars index (DXY), a measure of the strength of the dollar against other currencies, fell to a three-year-low on Monday as investors fretted about tariffs, economic prospects and possible threats to Federal Reserve’s independence.
President Trump intensified his criticism of Fed Chair Jerome Powell on Monday and demanded the central bank to cut rates immediately. The latest comments came after Trump last week said Powell’s “termination cannot come fast enough,” while White House economic advisor Keven Hassett said the president is evaluating ways to possibly dismiss Powell.
Investors are concerned that a decision by Trump to remove Powell from his position before the term of the Fed chief in May 2026 ends could undermine the confidence in the U.S. currency and the dominant role played by the United States in global financial markets.
The U.S. index, which measures performance of the dollar against a basket or foreign currencies, has dropped about 5% from early April, and around 9% in the first half of this year, amid uncertainty regarding the Trump administration’s trade policies. The index was trading at 98.32 by late Monday. This is its lowest level since March 2022.
Below, we examine the technicals for the U.S. index weekly chart. We identify critical levels to be aware of amid the potential for more news-driven volatility.
Bull Trap Confirmation
After breaking out of a descending triangular pattern in October last year, the U.S. Dollar Index rallied for several month but faced selling pressure as it approached 2022’s high. Since then, the index has been trending sharply lower. It recently fell below the pattern’s bottom trendline, confirming a bull trap. A trading event that lures traders into buying before a sudden market reversal causes losses.
While the relative strength indicator (RSI) confirms a downward trend, it has entered oversold territory and increased the likelihood of a short-term rebound.
Let’s identify critical support and resistance areas on the U.S. index chart that investors might be monitoring.
Important Support Levels to Watch
The first lower level is 95. The index may attract buyers in this area near the horizontal line connecting multiple peaks and valleys on the chart from October 2017 to January 2022.
If the index makes a more significant decline, it could return to lower support at 90. Investors can look for entry points near two prominent swing-lows that appeared on the chart during the first half 2021, prior to a 15 month bull run.
This area is also near a projected measured-move downside target. It calculates the distance between the descending triangle’s widest point, and subtracts that amount from its lower trendline.
Monitor key resistance levels
During upswings it is important to closely monitor the 101 level. Countertrend rallies would likely be met with selling pressure near the lower trendline in the descending triangular pattern, which could change from a previous support area to future resistance.
Further upside could lead to a move towards around 107. Tactical investors who have built up positions in the U.S. Dollar index at lower levels might decide to lock in their profits here, near the notable swing high of October 2023. This is also close to a minor peak which formed on the graph last November.
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As of the date of this article, the author did not own any securities listed above.
