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The USD Index has been trending lower after finding resistance at 105.50. However, price is now at a key weekly demand zone, will the price trade higher from here?

Watch the video to learn more…

USD Index Analysis

The USD Index continues to trade lower despite the talks from the Federal Reserve of higher rates.

In the recent Federal Funds rate decision the Fed hiked interest rates by the planned 25 basis points.

This bought the Federal Funds Interest Rate up to 4.75%-5.00%. 

In the press conference after the Federal Reserve Chairman Jerome Powell was asked if pausing rates were discussed and he replied ‘yes’. This saw the USD weaken significantly in the market with the USD falling against all of its major counterparts. However, the Chairman did go on to say that if the Fed needed to raise rates higher, they would do so. Any talk of rate cuts were shut down as he stated ‘participants don’t see rate cuts this year’. 

US10YR bond yields and the USD Index are generally positively correlated, meaning that they tend to move in the same direction.

When US10YR bond yields increase, it usually indicates that the market expects higher economic growth and inflation in the future, which can lead to higher interest rates. Higher interest rates typically make the US dollar more attractive to investors, as they can earn a higher return on their investments. This can cause the value of the USD to increase relative to other currencies, leading to an increase in the USD Index.

Conversely, when US10YR bond yields decrease, it can indicate lower economic growth and inflation expectations, which can lead to lower interest rates. Lower interest rates can make the USD less attractive to investors, as they can earn a lower return on their investments. This can cause the value of the USD to decrease relative to other currencies, leading to a decrease in the USD Index.

The US10YR Note Bond Yields are in an interesting position at 3.50%. When looking at the chart we can see that the last time bonds were here we saw bond yields move higher. The 10-year yield is used as a sign of investor sentiment in the economy.

You can see when comparing the US 10yr and USD Index, the correlation between them is very strong as expected. This could however give us a slight insight into what could happen next for the USD Index. 

Looking at the chart we can see that the price has been trending to the downside after finding resistance at 105.50.

This level held confluence with a long term trend line resistance. However, despite the recent weakness in the market the price has come into a key supporting zone around 102.00. If the price does find support here and the 4hr begins to form a double bottom or change of trend pattern, traders looking to go long could look for opportunities.

USD Index

How To Trade Forex USD Index 3-3-23

The price on the chart has traded through multiple technical levels and some observations included:

  • The USD Index found resistance at the key level of 150.50.
  • Price has trended lower since then, due to the possible easing of monetary policy from the Federal Reserve.
  • However, price has now come into a key demand zone from the higher time frame.
  • The 102.00 level can act as support here which could see prices trade higher. 

Have you watched our GOLD analysis? You can see it here.

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