Finds the floor at a long-term historical support level

• The US dollar index reached a key support level at the 100 mark.
• This has historically provided a springboard for a recovery, however, it is too early to tell if history will repeat itself.

The US Dollar Index (DXY) is in a medium to long-term sideways trend over a multi-year range. Since late July, it has consistently deployed a leg down in that range from the ceiling around 105 to the floor of the range at the 100 level.

100 is important. In addition to being a key psychological level, 100 is also a major historical support level that has provided a safety net for prices to decline on three previous occasions since 2023 (circled below). The question is, will 100 come to the rescue again this time?

US Dollar Index Daily Chart

Price action is still bearish and no strong bullish reversal patterns are forming – neither the shape nor the candlestick variety. This suggests a higher risk of downside. A continuation south would likely see the DXY hit the next support level at 99.57, the low since July 2023. This is the lowest floor of the range – a decisive break below would be a very bearish sign.

The Relative Strength Index (RSI) momentum indicator is oversold on both the daily and weekly charts (not shown). This suggests that prices are overextended to the downside and there is a higher risk of a pullback.

However, the RSI has not yet broken out of the oversold zone, a necessary condition for a buy signal. As it stands, the fact that the RSI is oversold is only a warning to the bears not to add to their short positions, it should fully rise from the oversold to provide a reversal signal.

The Moving Average Convergence Divergence (MACD) momentum oscillator has not yet crossed above its red signal line either. And this would be necessary to provide a buy signal.

In conclusion, there is a risk that although the US Dollar Index has reached an all-time low, it may simply continue to decline unless price action forms a reversal pattern or momentum indicators provide firm buy signals.