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The U.S. Dollar Index at a Three-Year Low: Analysis and Implications

On Monday, the U.S. dollar index reached a three-year low, stirring concern among investors due to rising tariffs, an uncertain economic landscape, and perceived challenges to the Federal Reserve’s independence.

President Trump intensified his critique of Federal Reserve Chair Jerome Powell, insisting that the central bank must implement immediate interest rate cuts. Trump’s remarks, which hinted at a potential dismissal of Powell, were coupled with comments from White House economic advisor Kevin Hassett, indicating that the president is exploring options to remove Powell.

The fear among investors is that if Trump were to act against Powell before the latter’s term concludes in May 2026, it could diminish confidence in the U.S. dollar and jeopardize the country’s prominent position in the global financial marketplace.

The U.S. dollar index, which evaluates the dollar against a basket of foreign currencies, has experienced a decline of approximately 5% since early April and nearly 9% since the start of the year. As of late Monday, the index stood at 98.32, reflecting its lowest values since March 2022, attributable largely to the uncertainties tied to trade policies under the Trump administration.

This article aims to examine the technical aspects of the U.S. dollar index, highlighting critical levels that market participants should monitor amidst the potential for continued market fluctuations driven by news.

Bull Trap Confirmation

Following a breakout from a descending triangle last October, the U.S. dollar index initially surged for several months but faced renewed selling pressure as it neared its 2022 peak. Recently, the index has dipped below the lower trendline of this pattern, signaling a bull trap—a scenario where market conditions entice investors into buying, only for the market to reverse unexpectedly, resulting in losses.

Despite the relative strength index (RSI) suggesting bearish market momentum, it has also entered the oversold zone, thereby increasing the chances of a rebound in the near term.

Next, we will identify essential support and resistance levels on the U.S. dollar index’s chart that traders are likely paying attention to.

Key Support Levels to Monitor

The first significant support level is positioned around 95. This area may garner buying interest, as it aligns with a horizontal line connecting multiple peaks and troughs between October 2017 and January 2022.

A deeper decline might bring the index down to a more critical support level at 90, where investors may identify attractive entry points. This level coincides with notable swing lows from the early months of 2021, which marked the beginning of a 15-month bull market.

Moreover, this region correlates with a projected downside target derived from a measured move that calculates the extent of the descending triangle’s widest point, potentially further complicating market dynamics.

Key Resistance Levels to Observe

During upward movements, the 101 threshold will be critical to observe. Counter-trend recoveries are expected to encounter selling resistance near the descending triangle’s lower trendline, which may shift from a former support zone to a resistance barrier.

Should the dollar index extend its rally, a target around 107 may come into play. Tactical traders who entered positions at lower levels might consider taking profits at this stage, particularly as it aligns closely with an important swing high from October 2023 and a minor peak noted in November.

The insights and analyses provided are intended for informational purposes only.

As of the publication date of this article, the author does not hold any securities mentioned herein.

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