The DXY index has been trading well below the long-term trend lines here for awhile and may remain weak for some time to come. Fundamentally speaking, the dollar's ( quote ) real challenge here is the prospect that a sustained oil shock will accelerate global inflationary pressures. In the United States in particular, the dollar is seen as vulnerable to the prospect that the Federal Reserve will effectively surrender to inflation in order to avoid raising interest rates before the last possible moment. Meanwhile, European central bankers are seen as much more hawkish on inflation and able to raise euro rates as required. While it is moving the markets, this theory has some flaws. Most notably, the euro zone contains a lot of members who are already struggling to pay their debt at currently historically low interest rates. Even a perfunctory interest rate hike could drive Greece, Portugal, Ireland or even Spain back into another funding crisis -- which would likely have a net negative impact on the euro down the road, to say the least. The upshot of all of this is that with the DXY below key lines -- even the 10-day moving average is up at 77.61 here, well above us now -- the dollar has only resistance above it and very little near-term support. This may be the line in the sand that the greenback is not allowed to cross. We will just have to see.
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