17.04.202316:22 Forex Analysis & Reviews: U.S. Dollar Index: Brief results and near-term outlook

The new week opens in positive territory for the U.S. dollar. As of writing, the dollar index (DXY) futures were trading near 101.40, nearly 100 points above last Friday's local 12-month low of 100.42. The dollar was still able to push back from it, despite continued pressure.

Despite the negative report on U.S. retail sales, published at the beginning of the American trading session, the dollar was able to develop an upward correction, finishing last Friday with an increase of 57 points (for the DXY index). Its strengthening was also supported by positive data on industrial production for March and the University of Michigan report, according to which the preliminary consumer confidence index for April was 63.5 points, exceeding 62.0 (forecast and value for March), and the report's component regarding inflation expectations for one year ahead jumped to 4.6% in April from 3.6% in March.

Market participants also continued to assess the minutes of the Fed's March meeting published last Wednesday, which showed that all its leaders are set to raise the interest rate range by 25 bps, preferring to continue fighting high inflation despite the risks of recession and crisis in the banking sector after the collapse of two U.S. banks earlier last month.

The core consumer price index (Core CPI) rose by +0.4% in March (to +5.6% in annual terms), while CPI slowed down in March to 5% year-on-year (against the forecast of 5.2% and 6.0% in February). However, inflation in the U.S. is still almost three times higher than the Fed's 2% target level.

Hawkish comments from Fed officials also helped the dollar strengthen on Friday's U.S. trading session.

During today's trading day, the dollar is trying to develop an upward correction, also expecting new drivers to strengthen on the eve of the Fed meeting on May 2–3. Now, according to the Chicago Mercantile Exchange (CME), markets are pricing in an 84.5% chance of a 25 basis point interest rate hike at the next meeting.

However, such drivers are likely to appear only next week when fresh data on U.S. durable goods orders, preliminary Q1 GDP data, which is expected to be better than in the previous quarter (+2.7% vs. +2.6% in the Q4 2022), and fresh data on Americans' expenses/income will be presented.

From a technical perspective, the U.S. Dollar Index (CFD #USDX in the MT4 terminal) is developing a downward trend, moving towards key support levels 100.35 (144 EMA on the weekly chart), 100.00, and 99.15 (200 EMA on the weekly chart). Breaking through the 99.15 support level would significantly increase the risk of breaking the global bullish trend for the dollar, which still remains in the global bull market zone above the 93.40 support level (200 EMA on the monthly chart).

In an alternative scenario, the DXY would resume its growth. However, only breaking through the 104.20 resistance level (200 EMA on the daily chart) would bring the DXY back into the medium and long-term bullish market zones. Overall, the downward trend prevails, and as a result, it is preferable to choose short positions.

Support levels: 101.45, 101.00, 100.75, 100.35, 100.00, 99.15, 99.00

Resistance levels: 101.82, 102.00, 102.80, 103.00, 104.00, 104.20, 105.00, 105.85, 107.00, 107.80, 109.25