The dollar took a breather this week after a massive sell-off earlier in the week.
The DXY bottomed out at 103, the low it hit before Trump’s election victory. However, by the end of the week, it had rallied back to 104.
The accumulated oversold condition gives room for a bounce, but there’s also a chance that the situation could quickly develop into a new dollar momentum.
Over the past three years, the Dollar Index has reversed to the upside on drawdowns near the 200-week moving average. It is now above 102.2. The dollar reversed to the upside twice in similar conditions in 2023 and briefly dipped lower in 2024.
Dollar Index has reversed to the upside on drawdowns near the 200-week moving average
Interestingly, the changing fundamental backdrop has been working against the dollar all along. Slowing job growth and cooling inflation worked against the dollar as the date for a rate cut approached. However, this did not prevent the dollar, which had become overbought in previous weeks, from rising.
