Dollar’s 18-Month High Leaves Analysts Arguing Over One Trendline

Source Beincrypto

The US Dollar Index (DXY) held around 102.2 early Monday, close to the 18-month peak it reached last week. Investors have stayed cautious as the Middle East conflict escalated ahead of key US inflation data.

Analysts disagree on whether the rally now stalls at a long-term trendline or extends a multi-year uptrend.

US Dollar Index (DXY) Daily Chart.US Dollar Index (DXY) Daily Chart. Source: TradingView

Chart Watchers Split Over the Dollar’s Next Move

The rally follows a September in which the index gained nearly 2%. On the daily chart, the DXY climbed from roughly 98.8 in early September to above 102. The move also carried the index past its July highs near 101.6. 

Still, macro strategist Gert van Lagen expects the advance to stall at a trendline the index broke last year. 

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Sweep, co-founder of GlydeGG, also described the move as a bearish retest. He expects a rejection next, which he said would be bullish for crypto and stocks.

In contrast, another analyst argued the DXY remains in an 18-year bull market. By his count, that run began at a record low of 70.698 on March 17, 2008. He added that the rally has years to go as the index approaches a quarterly golden cross.

Trader Alejandro also expects the dollar to strengthen, with direct consequences for digital assets.

“I believe the dollar is setting up for another major move higher. A stronger dollar tightens financial conditions and tends to put pressure on risk assets, especially crypto and altcoins,” he said.

Wednesday’s Inflation Print Sets Up the Fed’s October Call

Beyond the charts, Wednesday’s consumer price index (CPI) report now takes center stage. Producer prices and retail sales follow on Thursday, ahead of the Federal Reserve’s October 28 rate decision.

The Fed raised rates to a range of 3.75% to 4.00% on September 16. It was the central bank’s first hike since July 2023.

Traders have since scaled back bets on a follow-up increase. CME FedWatch data as of press time put the odds of a hold this month at 82.8%. A month earlier, the hold probability stood at 51%, while a hike carried 42.5%.

Fed Rate Hike Odds For OctoberFed Rate Hike Odds For October. Source: CME FedWatch

Meanwhile, early October data showed consumer sentiment falling again. The University of Michigan’s consumer sentiment index fell to 46.3 in its preliminary October reading, a five-month low. That compares with 48.1 in September, as conflict-driven living costs weighed on households.

Barclays analysts see scope for the dollar’s rally to stall, with some near-term retreat possible. They pointed to bond market volatility, which has made borrowing conditions tighter worldwide. The analysts said that strain could prompt more soothing Fed messaging before October 28, especially if CPI comes in cool.

Barclays tied its pullback case partly to a soft CPI reading. That makes Wednesday’s data the next test for traders on either side of the trendline.

Crypto Has a Stake in Which Way the Dollar Breaks

Bitcoin (BTC) has historically moved inversely to the dollar, so a firmer greenback tends to weigh on its price. That pattern did not hold in September, when Bitcoin gained 6.14% even as the dollar index rose nearly 2%.

October has been tough for digital assets so far. Total crypto market value has fallen 1.4% this month, a move tied to higher yields, an oil spike, and fund selling.

If the dollar rejects at the trendline, one source of pressure on Bitcoin would ease, given that inverse link. A breakout would instead test whether September’s resilience can repeat with the dollar at even higher levels.

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Disclaimer: For information purposes only. Past performance is not indicative of future results.
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