U.S. Dollar Index outlook weakens on Michigan Consumer Sentiment miss by 3.7 points
U.S. Dollar Index plunges below 100 as sentiment hits multi-year low.
The U.S. Dollar Index (DXY) is under mounting pressure, weighed down by a mix of negative sentiment data and growing concerns over the U.S.’s economic outlook.
After dropping nearly 4% over the past week, the DXY is grappling with a critical support level and teetering in oversold conditions. While technical signals suggest the potential for a reversal, the broader macroeconomic landscape raises questions about the dollar's resilience in the short term.
The catalyst for the DXY’s was evident last Friday, when the University of Michigan’s preliminary Consumer Sentiment Index plunged to 50.8, well below market expectations of 54.5 and far from the prior reading of 57. The result marked a stark signal that US households are losing confidence in the economy, largely due to the growing uncertainty surrounding President Trump’s protectionist policies.
The trade tensions, including the volatile tariff standoff with China, are beginning to affect consumers' perceptions of their future financial stability, leading to a dampened outlook for spending and economic growth. As consumer sentiment deteriorates, so too does the outlook for the dollar as weaker domestic demand may slow economic activity and limit future Fed tightening.
DXY price dynamics (July 2024 - April 2025). Source: Tradingview
Markets question dollar resilience as RSI signals bullish reversal amid macro risks
In the face of this fundamental headwind, the DXY has broken below the key 100.00 psychological level, reaching a low of 98.75. However, the price action is not without its nuances. As the DXY falls, its RSI enters oversold territory, suggesting that while the bearish pressure is strong, the downside may soon be exhausted. As seen on the 1hr chart, the 50 Exponential Moving Average (EMA) reinforces the 100.00 resistance zone. Despite today's 0.41% drop, the ability of the dollar to sustain further declines will largely depend on whether it can find support at the 98.75 level or if a technical correction will materialize.
However, the rally in US equities and the prevailing optimism about potential trade agreements may provide the DXY with a temporary reprieve. Should risk appetite return and sentiment shift towards a more positive outlook, the DXY may attempt to reclaim the 100.00 level. A failure to do so, however, risks pushing the dollar to retest lower levels, potentially extending its weakness in the week ahead.
The U.S. Dollar Index experienced its worst weekly drop since November 2022, falling 3.9%. Geopolitical tensions and China’s tariff hike on U.S. imports contributed to the decline.
