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Current status
The dollar index closed last week at 100.55, its lowest level since July 2023. It has not fallen consistently below that level since April 2022.
Technical analysis
While the US monetary regime change is of fundamental importance, the bulls may launch a counterattack in the short term. On a weekly basis, the dollar’s RSI has returned to oversold territory, which was last seen 13 months ago, marking a turning point. In 2020, entering oversold territory did not lead to an immediate reversal, but the downside momentum has largely been exhausted.
More importantly, this exhaustion occurred during a move towards the key 200-week moving average, the approach of which in early 2022 revived the dollar buying momentum.
Fundamental analysis
Fundamentally, the currency market has sold the dollar unnecessarily. Interest rate futures now realistically price in a 25 basis point (bp) rate cut in September (66%), in stark contrast to the 50 bp confidence in a rate cut recorded on August 5.
By moving expectations towards a natural rise (25 points), Federal Reserve Bank Expectations appear to indicate that the US Federal Reserve will be more hawkish than the market had anticipated, which could lead to a rise in the value of the dollar in the coming weeks.
climate forecast
The only way the dollar’s potential near-term rally could turn into a rally is if financial markets are hit by negative shocks. In the absence of such shocks, the dollar’s recovery could stall at the 101.7-102.5 range.
