The ICE US Dollar Index fell through key chart support on Tuesday, sending a message that further declines are possible.
The DXY index, -0.23%, which tracks the US dollar’s performance against a basket of rivals, slumped 1.2% in afternoon trade to put it on track for its lowest close since April 2022.
The sell-off came after relatively tame consumer inflation data for June sent Treasury yields lower, meaning investors who bought dollars so they could buy US debt instruments made less money. Read the MarketWatch Bond Report column.
The dollar index fell below its low during the previous sell-off in February, April and May, around the 101 level.
Fact Set, MarketWatch
“With headline inflation continuing to moderate, the yield differential between the US and the rest of the world will be perceived as less attractive by global bond investors,” wrote technical analyst Janney Dan Wantrobski in a note to clients. “This, plus the recessionary overtones creeping into the narrative, could lead to further weakness in the US dollar in our view.”
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The dollar index is already in a precarious technical position. After a sharp decline in late 2022 to January 2023, there has never been a significant increase.
The rally to recovery peaks in early March retraced less than a third of the decline from a two-decade high in late September to an initial low in early February.
And as Wantrobski noted, the dollar has held below the 200-day moving average, which many chart watchers use to determine long-term trends, as the dollar remains range-bound throughout the first half of 2023.
Fact Set, MarketWatch
Looking to the downside, Wantrobski sees strong support in the mid-90s range. It was a zone of support seen in early 2022, just before a big rally, sparked by expectations of—and the actual start of—the Federal Reserve’s interest rate hike cycle in March 2022.
And below that, the dollar’s first-half-2021 lows in the 89 to 90 range should provide support.