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Overview of the US dollar:
- the U.S. dollar It has fallen significantly in recent weeks, with the DXY near yearly lows at the time of writing
- The period of weakness could be prolonged if the Fed adopts a less aggressive stance at its July meeting
- the Federal Open Market Committee It is expected to raise interest rates by 25 basis points, but the markets will focus more on guidance
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The US dollar, as measured by DXY, fell sharply during the first half of the month, but lacked conviction over the past few trading sessions after stalling at technical support around the psychological level of 100.00.
The consolidation may continue in the coming days as traders look for fresh catalysts in the market, but next week could see decisive directional movement, as the Federal Reserve is scheduled to announce the July monetary policy meeting.
The FOMC is expected to resume the normalization cycle after a short pause, raising interest rates by a quarter point to 5.25%-5.50%. This upcoming adjustment has been priced into the entire policy stance, so traders should focus primarily on forward guidance.
Related: How to Trade the US Dollar Index – Trading Strategies and Tips
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Last month, the US central bank signaled its willingness to apply 50 basis points of additional tightening in the second half of the year, but rapidly weakening price pressures in the economy may warrant a softer stance.
If policymakers adopt a less hawkish approach or give any signs of an end to their hiking campaign, the US dollar is likely to extend its recent decline, as traders begin to take a full pivot stance. This could mean huge losses for the DXY.
From a technical point of view, DXY is hovering above an important support area, extending from 99.40 to 99.60 after this month’s sell-off. If the bears can push prices below this floor in the near term, we could see a drop towards 97.70 move over the summer.
Conversely, if the buyers regain control and trigger a bullish reversal, the general resistance is at 100.75. A successful move above this barrier could reinforce the bullish pressure, paving the way for a rise towards the psychological level of 102.00.
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