The U.S. Dollar Index is about to make its first rare death cross on the weekly chart in over four years. Typically indicating a bearish signal, this technical setup marked notable trend reversals in 2018 and 2021. As trade tensions worsen and the index drops below 100, a lot of forex traders are also reassessing their approaches. Therefore, renewed tariffs and shifting macro signals could lead to a dollar rebound, despite technical expectations.
Can the Death Cross Spark Another Rally?
A death cross happens when the 200-week line is below the 50-week moving average. It is also frequently taken to be a sign of persistent weakness. However, the dollar saw persistent rallies in 2018 and 2021, reaching multi-year highs. Furthermore, many believe the setup may be a contrarian signal even though the pattern suggests a decline. This is particularly true if economic or geopolitical factors are at play.
The dollar is also becoming a safe haven for investors as global currency markets respond. The U.S. Dollar Index is currently having difficulty rising above the 104 resistance level, which is where the moving averages converge. Therefore, this intersection could be a turning point where fear-driven selling could result in a return to dollar strength.
U.S. Dollar Index Eyes Unexpected Support Factors
Investors expect global supply chains to become more volatile as trade tensions escalate. Canada’s metal exports and India’s pharmaceutical sector are viewed as potential flashpoints that could result in retaliatory measures. The dollar has been negatively impacted by the Federal Reserve’s dovish policy in recent months.
Recently, the US proposed new 25% tariffs on imports from Canada and India for 2025. These measures have already shaken up emerging markets and target important industries like electronics, pharmaceuticals, and aluminum.
However, market expectations for rate cuts may change if new tariffs create new inflationary pressures. This would provide a substantial boost to the U.S. Dollar Index heading into the final quarter. Thus, the direction of global economic risks will have a significant impact on the dollar’s future. The dollar may once more attract capital as a hedge if market volatility and policy friction persist.
Can the U.S. Dollar Index Break History Again?
The U.S. Dollar Index has previously defied the death cross’s conventionally bearish interpretation. Uncertain monetary policy, a tense global market, and growing trade tensions are all contributing factors to this year’s setup. Therefore, if previous patterns continue, this technical low might signal the start of yet another unanticipated uptrend. Despite the fact that history is not always precisely the same, the dollar can turn uncertainty into momentum. Traders would be well advised to keep that possibility in mind.
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