The US Dollar (USD) depreciated against most currencies, with the DXY last noted at 99.59. Initially, safe havens like CHF, JPY, and gold rallied due to reports of Israel’s potential actions against Iran.

Moody’s downgrade serves as a reminder of the unsustainability of increasing deficits without fiscal discipline. Concerns over USD’s role as a safe haven and reserve currency persist, possibly leading to diversified flows out of US assets.

Dollar Rally Strategy

The notion of selling USD on rallies may extend further. Bullish momentum is weakening, indicated by a falling RSI. Current support is at 99.10, with resistance at 100.10, 100.80 and 101.40.

From what we’re observing, recent price action in the US Dollar underscores a broader caution creeping into currency markets. The DXY index drifting to 99.59 reveals a rotation out of the greenback, especially as geopolitical risks encouraged capital flows into traditional havens. While gold and the yen saw buying interest, it was telling how tepid the rebound was in USD, even in moments that should have played to its historic strengths.

Moody’s downgrade can’t be brushed off as a one-off. This adjustment didn’t happen in a vacuum. It’s a reflection of steadily increasing anxiety over fiscal imbalances, with rising deficits left largely unaddressed. Investors will compare the long-term appeal of dollar-based assets with that of other regions showing greater monetary or budgetary coherence. Re-thinking allocation across global exposures is a natural response.

What this translates to, in practice, is a more fragile underlying bid for USD. This matters. If the dollar loses its reliability as a bolthole in bouts of risk aversion, a premium that markets often assign to it begins to fade. Analysts are no longer automatically equating geopolitical stress or equity slippage with dollar strength. That shift in assumption can alter the behaviour of markets in ways that require tactical adaptation.

Market Adaptation and Strategies

As to levels, technical indicators need to be treated with care, but they also offer a reference point. The Relative Strength Index turning downward isn’t just a line on a chart — it shows momentum cooling. Short squeezes can of course occur, yet without supportive data or new flows into dollar assets, rallies may be constrained. The market is treating moves towards 100.10 and beyond with scepticism. There’s repeated evidence of supply entering at those zones.

For now, 99.10 stands as the fulcrum. If that gives way, a cascade toward the next layer of bids becomes more probable. Below that opens the path toward deeper short-side conviction. Better to monitor intraday divergences before assuming bounce potential. Nothing here presently points toward a reacceleration higher.

When discussing responses going forward, there are a few things to digest. Prices may remain heavy. We are seeing an environment where the old heuristics such as ‘buy dollars in trouble’ are being pushed aside. Instead, traders focused on volatility and skew need to weigh short-dated levels differently. That also changes pricing expectations on options-related positions.

Not everything has to be directional. Neutral stances or convexity trades can still offer ways to extract value. The key now is not to anchor to last year’s themes. This isn’t just a fade on news or an overreaction; it’s the slow revaluation of what the dollar’s role actually is, on both a spot and macro horizon.

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