The Dollar Index is in a state of equilibrium, consolidating around crucial technical levels as it contemplates its trajectory for the year. With the DXY steadfastly clinging to its 200-day moving average for the past eight days, hovering near the 103 level, it appears to be undergoing a consolidation phase before embarking on a new medium-term trend. Approximately a month ago, the dollar consolidated at this level, culminating in a notable 2.9% drop.

The resilience of the dollar, rebounding and retesting prior levels, indicates substantial support on the downside that prevented the DXY from slipping below 100. The proximity to this level has garnered buying interest over the past year. Notably, during the recent consolidation, the 50-day moving average, previously a resistance, has now transitioned to a supportive role.

These factors contribute to a bullish outlook for the dollar, suggesting further growth. Previous significant consolidations occurred at pivotal levels of 113 and 106 in 2022 and 2023, respectively. However, the presence of two consecutive lower annual highs suggests long-term pressure. Traditionally, the dollar tends to decline when the Fed contemplates or initiates easing in a growing economy. In such a scenario, domestic demand and imports rise, making smaller economies more attractive to investors.

The dollar’s movements in the past two years form a triangle, with the lower boundary at 100 and the upper boundary now at 104. A breakout from this triangle will signify the market setting the dollar’s direction. Until then, market sentiment may undergo shifts.

The Fed meeting and the monthly employment report scheduled for next week may offer clarity on the dollar’s future trajectory. A decisive exit from the triangle could mark the beginning of a multi-month move, with a bullish scenario targeting as high as 115 (+11%) and a bearish scenario potentially dipping as low as 90 (-13%).

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