In response to yet another interest rate hike, the U.S. dollar index rose by a record-breaking 3% over the week. The long-term parallel channel's top and resistance at 113 have both been reached by the DXY. The DXY's parabolic surge has drawn criticism from the crypto community.
The US Dollar Index (DXY) maintains its exponential growth. Although it rose by 3% this week, observers wonder when and at what point the US dollar's hegemony will expire. Other international currencies, established markets, and cryptocurrencies all fare poorly when the dollar is strong.
The Federal Reserve (Fed) maintains its monetary policy of financial tightening in tandem with the United States' chronically high inflation rate (US). Another increase in interest rates was made this month, by 75 basis points. The US dollar's value and the DXY index, which measures its strength, have increased as a result of Fed actions and the global macroeconomic environment.
The DXY gauges the value of the dollar in relation to a basket of six significant foreign currencies. The euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona are a few of them. For instance, an index value of 120 indicates that over a specific time period, the U.S. dollar has strengthened 20% relative to a basket of currencies. In other words, if the DXY is rising, the USD is becoming more valuable or strong in relation to other currencies.
Parabolic DXY rise
Since May 2021, the US dollar index has been rising at a parabolic rate. The blue parabolic support line's precise shape is unknown because it appeared to have broken early last month.
After the DXY approached the zone of resistance at the 109 level, this seemed feasible. However, it only made a 4% correction after that and rebounded off the 105 level, making it a support level (S/R flip). It again approached the 109 level a few weeks later, and this week, it decisively broke out of it by producing a record-setting 3% green candle (blue arrow).
Since March 16, 2020, when the DXY ignited at the beginning of the COVID-19 pandemic, this is the highest weekly gain (red arrow). It is important to note that such a sharp climb served as a peak signal at that time, following which the DXY underwent a 13.5% correction and hit a low of 89. This 284-day decrease served as both a trigger for the cryptocurrency market's expansion at the beginning of 2020 and the beginning of 2101.
As of right now, we can see that the DXY has encountered additional resistance in the 112-113 zone. The only significant area of resistance after it is broken through is at 120. (orange line). The macro peak in early 2002 serves as a reminder of this opposition.
On the monthly chart, however, we see a long-term ascending parallel channel. The aforementioned parabola in this pattern marks a dramatic change from the channel's support line to its resistance. The channel's median, which would serve as the fundamental support in the event of a correction from the pattern's peak, is currently around the number 103.
Data analysis procedure
A multi-stage bearish divergence that dates all the way back to May 2022 was emerging on the US Dollar Index RSI weekly chart. However, it was only partially refuted this week (red arrow).
Despite this, the RSI number in the overbought region is 76.42 right now whereas it was 76.58 in July. Therefore, the bearish divergence may still hold true even in the face of a significant gain.
The Bollinger Band Width Percentile (BBWP) chart, a directionless indicator of volatility, is also rising once more. It currently reads 93.25% and is once more quite near to its peak, which was attained in May. This is a further indicator of the DXY's extremely ferocious rise and could portend a coming correction.
