DXY: Cautious upside risks persist – Rabobank

Rabobank’s Senior FX Strategist Jane Foley notes the US Dollar Index (DXY) is trading near key moving averages, with markets reluctant to extend USD longs despite renewed Middle East tensions. Foley still sees scope for the Dollar to move higher in coming weeks, even as they expect Federal Reserve (Fed) rate cuts later this year to moderately weigh on USD against the Euro.

Dollar holds near key resistance

"The DXY dollar index is currently positioning almost on top of its 100- and 200-day smas which are at 98.479 and 98.568 respectively. For now these levels are providing some resistance which is reflecting the market’s reluctance to lengthen USD positions."

"However, it appears that the market is reluctant to push the dollar higher again, given risk that these gains could again be swiftly unwound. For now we continue to see risk that the USD can move higher in the coming weeks."

"In our view, the USD’s safe haven credentials are based around liquidity. This is unmatched by any other currency, and it drives the use of the greenback in transactions around the world."

"In Rabobank’s view the Fed is likely to cut rates further this year. This could undermine the USD moderately against the EUR on a 3 to 6 month view."

"Consequently, we do not expect the market to rebuild long EUR positions back to last year’s levels and expect any up move in EUR/USD in H2 to lack strong conviction."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)