The ICE U.S. Dollar Index experienced a significant decline on Tuesday, indicating the possibility of further losses in the near future.
In afternoon trading, the index DXY, -1.16%, which measures the performance of the US dollar against a group of competitor currencies, dropped by 1.2%. This puts it on track to achieve its lowest closing point since April 2022.
This decrease followed the release of relatively mild consumer inflation data for June, which resulted in a decrease in Treasury yields. Consequently, investors who had purchased US dollars to invest in US debt securities found themselves earning less money.
The dollar index has broken below previous lows observed during selloffs in February, April, and May, specifically at the 101 level.
Janney technical analyst Dan Wantrobski expressed his belief that the narrowing yield differentials between US bonds and those of other countries, along with the looming possibility of a recession, could weaken the US dollar even further.
The dollar index was already in a precarious technical position prior to this decline. Following a significant drop from late 2022 through January 2023, it failed to stage a substantial recovery.
The rally seen in early March only managed to retrace less than one-third of the decline from the two-decade high in late September to the initial low in early February.
Additionally, as Wantrobski pointed out, the dollar has remained below its 200-day moving average throughout the first half of 2023. This average is often used by chart analysts to determine long-term trends.
According to Wantrobski, there is strong support expected in the mid-90s range, which served as a support zone in early 2022 before the significant rally fueled by expectations of interest rate hikes by the Federal Reserve.
Below that, support is anticipated at the dollar’s 2021 lows in the 89-to-90 range.
