The US Dollar Index (DXY) started the week on a softer note, retreating from a high reached last Friday. Trading just above the mid-98.00s, it shows a mild negative bias and ended a brief three-day winning streak. The 100-day Simple Moving Average (SMA) is at 98.61, acting as resistance, while the index remains marginally below it. A daily move above the SMA could ease current downside risks.
Technical indicators show mixed signs. The Moving Average Convergence Divergence (MACD) is below the Signal line but edging higher, indicating reduced bearish momentum. The Relative Strength Index (RSI) is at 42.99, suggesting subdued momentum, with a move towards 50 needed for stability.
Influence of Economic Policies on the US Dollar
The US Dollar is the official currency of the United States and forms 88% of global foreign exchange turnover. Its value is influenced primarily by Federal Reserve policies on interest rates. Quantitative easing and tightening also affect the Dollar’s strength. Quantitative easing involves printing more Dollars, typically weakening the USD. Conversely, quantitative tightening, by stopping bond purchases, usually strengthens the Dollar.
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The US Dollar is starting the holiday week on a weaker footing, pulling back from last week’s highs. We see the DXY struggling just below the 100-day moving average, a key technical level now sitting at 98.61. This price action suggests that the three-day winning streak we saw has lost its momentum.
This weakness is being driven by expectations of a more dovish Federal Reserve, especially after November’s inflation data showed CPI at just 2.3% year-over-year. The recent jobs report, which added a lower-than-expected 95,000 positions, further supports the case for the Fed to consider another rate cut in early 2026. These factors make holding dollars less attractive compared to other currencies.
Strategies for Derivative Traders
For derivative traders, this environment points towards strategies that profit from either further downside or a range-bound market. Buying put options on the dollar or selling call spreads above the 98.61 resistance level could be considered. Implied volatility may rise as traders position for the Fed’s first meeting in the new year.
We should also remember the shift away from the aggressive Quantitative Tightening we saw back in 2023. The Fed has since slowed its balance sheet runoff, which removes a key pillar of support for the dollar. This long-term policy change keeps underlying pressure on the currency.
Looking at momentum, the Relative Strength Index (RSI) is below 50 at 42.99, confirming the lack of buying power for now. While the MACD indicator shows that bearish pressure might be fading slightly, it has not yet given a buy signal. A sustained move and daily close above that 100-day average is necessary to change this negative outlook.
