The US Dollar is lost in translation – Dollar Index (DXY) Outlook

Catalysts for movements in the US Dollar have been confusing all types of Market Participants.

Reaching new cycle highs during the longest ever US Government shutdown (43 days), the Greenback consequently fell as the government reopened, driven by dovish hopes for the December 10 FOMC meeting.

Current yo-yos in the dollar are leaving traders in question.

All of this comes after a massive downtrend throughout the first half of the year due to tariffs and unpredictable policies from Donald Trump, requiring dollar-diversification from many economic and political parties around the world.

Dollar funding is also not at its best levels, with Reverse Repo (RRP) facilities (Bank Reserves at the Fed) at the lowest levels in years, a liquidity drain that is provoking significantly more volatile movements in the USD.

The pricing for the FOMC meeting, the last one of the year occurring in 10 days, peaked Friday very close to 90% and has now backed down to 85% amidst a lack of fresh data to influence pricing. Friday's Core PCE report may affect the entire pricing.

At its session lows, the Dollar Index was down almost 1.50% from its past week highs but has been subject to a V-shape rebound today.

The latest story? The White House could be preparing for a defeat regarding tariffs—potentially linked to recent court challenges blocking IEEPA-based levies—bringing natural mean-reversion flows to the dollar after quite a brutal weekly open.

Let's dive into Dollar Index charts as the USD makes its way back to being the second best performer of the FX session to start December.

Read More:

• US Stocks stumble: Markets catch a cold to start December
• Markets Today: Silver Hits $58/oz, Gold Soars to $4250/oz, China PMI at 4-Month Lows. Geopolitics and US PMI in Focus
• The Week Ahead of the December FOMC – Markets Weekly Outlook

The US Dollar has seen some violent up and down swings in November after a flawless ascent.

After forming a bottom at the September FOMC (highlighted in a preceding USD analysis), the Greenback gained back a lot of traction and peaked at 100.376 on November 20.

Having double topped at this point but also double bottomed after today's rebound, confusing reversals point towards a large trading range between 99.00 and 100.00.

Some banks are expressing concerns regarding the low levels of Reserves and with the confusion regarding the future path of Fed Cuts, a much lower correction is being prevented.

Individual currencies are also subject to their own dynamics like the Yen (JPY) retaking some ground after BoJ Governor Ueda's comments, in between much else.

To spot how sharp the reversals are, let's take a closer look to intraday timeframes.

You can spot further details on the V-shaped action in the US Dollar today which also corresponded to a test of oversold RSI levels.

The more rangebound a price action will be, the more it will respond to extreme conditions in RSI or other momentum indicators.

The recent low rebound points to immediate USD strength but it will face some hurdles which we will see on the 1H timeframe.

Levels to place on your DXY charts:

Resistance Levels

• 100.00 to 100.50 Main resistance zone
• 100.376 November highs
• 99.80 mini-resistance
• 99.40 to 99.50 Key Pivot (Immediate Test)

Support Levels

• Higher timeframe Pivot 98.80 to 99.00 (Daily Rebound and range lows)
• Past week lows and double bottom 99.03
• Mini-support 98.50 and 200-Day MA
• Main support 98.00

The Dollar Index is forming an hourly descending Channel which served as support for the Daily rebound.

Now testing the Key Pivot (99.40 to 99.50), it will be interesting to see if the reversal higher extends to confirm the Range – Keep an eye on the 50-Hour MA (at 99.47)

For this, dollar bulls will also have to break out of the hourly channel.

If they do, the range is confirmed. Rejecting the highs of the channel would on the other hand maintain the downward momentum.

It will be interesting to keep an eye on changes to the pricing for the FOMC meeting.

Safe Trades!

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