• The US dollar index has reached an important support level at the 100 mark.
• In the past, this has served as a springboard for recovery, but it is too early to say whether history will repeat itself.

The US dollar index (DXY) is in a medium and long-term sideways trend within a multi-year range. Since the end of July, it has shown a steady downward movement within this range from the upper limit at around 105 to the lower limit at 100.

100 is important. Aside from being an important psychological level, 100 is also an important historical support level that has already provided a safety net for falling prices three times since 2023 (circled below). The question is, will 100 come to the rescue again this time?

US Dollar Index Daily Chart

Price action is still bearish and no strong bullish reversal patterns are forming – either in the form or in the candlestick form. This suggests further downside risk. A continuation south would likely see DXY reach the next support level at 99.57, the July 2023 low. This is the lower floor of the range – a decisive break below this would be a very bearish sign.

The Relative Strength Index (RSI) momentum indicator is oversold on both the daily and weekly charts (not shown), suggesting that prices are overextended to the downside and there is a higher risk of a decline.

However, the RSI has not yet left the oversold zone, a necessary prerequisite for a buy signal. As things stand, the fact that the RSI is oversold is simply a warning for bears not to increase their short positions. To provide a reversal signal, it would have to come out of the oversold zone completely.

The momentum oscillator Moving Average Convergence Divergence (MACD) has also not yet crossed its red signal line. This would also be necessary to provide a buy signal.

In conclusion, there is a risk that the US dollar index, although it has reached a historic low, could simply continue to fall unless the price action forms a reversal pattern or momentum indicators provide clear buy signals.