The dollar maintains a strong stance as the year begins
The dollar index started the new year on a strong note, hitting a fresh two-year high on the first trading day as markets picked up momentum after a quiet holiday period.
In 2024, the dollar gained over 7% against a basket of major global currencies. This performance was marked by significant volatility in the first three quarters, followed by a robust rally in the final three months of the year.
Key drivers of the dollar’s performance included U.S. monetary policy and inflation dynamics. The currency’s safe-haven appeal during a period of geopolitical and economic uncertainty also played a significant role in its trajectory.
A notable shift in the Federal Reserve’s monetary policy outlook, driven by persistent inflation and promises from incoming President Donald Trump to stimulate the U.S. economy, fueled the dollar’s rally in late 2024. Additionally, the divergence in monetary policies between the U.S. and other major economies is expected to support the dollar in the months ahead, with economic growth acceleration likely to sustain inflation and keep U.S. interest rates steady, contrary to earlier expectations of aggressive Fed rate cuts.
Technically, bullish signals across daily, weekly, and monthly timeframes underscore a positive short-term outlook. Indicators such as the daily and weekly Tenkan-sen’s steep rise and divergence from the Kijun-sen, along with a bullish crossover on the monthly chart, highlight continued upward momentum.
The dollar index is currently challenging key technical resistance at 108.79, representing the 61.8% Fibonacci retracement of the 114.72 to 99.20 decline. A decisive break above this level could signal the end of the corrective phase from the multi-year peak of 114.72 (set in September 2022) and pave the way for a test of the psychological 110 level and the 76.4% Fibonacci retracement at 111.06.
Minor pullbacks due to overbought conditions are possible, with initial support expected near 108 (a previous high and the daily Tenkan-sen). Deeper dips should find a strong base around 106, aligning with the former support zone from October and November 2023 and the 50% Fibonacci retracement, ensuring the broader bullish trend remains intact.
Res: 108.80; 109.70; 110.00; 111.06
Sup: 108.28; 108.00; 107.51; 107.00
