US Dollar: Underlying Strength Points to Higher Levels Despite Short-Term Pullback
2024.11.25 06:21
The bulls have been on top, with the greenback recently hitting a two-year high. Yet, as the year winds down, cracks in its rally have begun to emerge.
A sharp pullback this week, sparked by profit-taking and a rebound in rival currencies, has raised questions about the greenback’s resilience. Traders are eyeing key economic data and geopolitical risks to gauge whether the dollar’s strength can hold or if softer momentum will set in.
After reaching a peak of 108 last week, the DXY slid by 1% to dip below 107, signaling potential stability as the market digests shifting dynamics.
Much of the recent volatility stems from President-elect Trump’s influence, particularly his appointment of hedge fund manager Scott Bessent as Treasury Secretary. Bessent’s market-focused policies, favoring growth and stability, have introduced uncertainty into the dollar’s trajectory.
Bessent’s Policy Impact and Currency Reactions
Bessent’s endorsement of Trump’s tariff and tax cut strategies grabbed headlines, yet his emphasis on market balance has softened the dollar against major peers. This week, the , , , and clawed back gains, capitalizing on a weaker greenback.
Economic Data in Focus
Key data releases this week, including the FOMC and inflation figures, could heavily influence dollar trading. Additionally, the second reading of Q3 and and data will be critical in shaping the Federal Reserve’s next moves.
Last week’s stronger U.S. PMI data contrasted with weak European numbers, pushing EUR/USD to multi-year lows. However, late-week recoveries in major currencies contained the dollar’s advance. With the Thanksgiving holidays set to reduce U.S. market activity, thinner trading volumes may amplify volatility or limit meaningful directional moves.
Geopolitical Risks Add Uncertainty
Beyond economic factors, geopolitical developments remain a wildcard. Escalating tensions between Russia, Ukraine, and Western powers have unnerved markets, while Iran’s willingness to restart nuclear negotiations with Europe introduces new risk dynamics. Such events could sway global risk sentiment, influencing demand for the dollar as a safe haven.
Trump’s Influence and Dollar Direction
Trump’s reemergence on the political stage has been pivotal for the dollar’s narrative. His Treasury appointments, coupled with promises of a growth-focused agenda, have buoyed U.S. equities but created headwinds for the dollar. Traders are closely watching how his policies balance domestic growth with external trade dynamics.
DXY Technical Outlook
Technically, the dollar index remains in a bullish trend, supported by robust U.S. data and geopolitical uncertainties. After testing the 107 region last week, the index faced profit-taking near the Fibonacci expansion zone of 108–110.
Key resistance lies at 107.9, with further gains likely targeting 108.7 and 110. On the downside, interim support sits at 106.7, while a break below 106.2 could deepen the correction to test levels under 105. The year-end’s traditionally lower trading volumes may limit the dollar’s momentum, leaving traders cautious about further upside.
As 2024 draws to a close, dollar traders face a mix of economic data, geopolitical risks, and market sentiment shifts. While the greenback has shown impressive resilience, cracks in its armor could emerge amid reduced trading volumes and a shifting macroeconomic backdrop. For now, the market’s direction hinges on this week’s developments, keeping traders on edge as they navigate year-end trading.
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