U.S. Dollar Strength Faces Major Resistance

Chart of the U.S. Dollar Index (DXY)
Chart of the U.S. Dollar Index (DXY) – Source: TheTechnicals.com and TradingView

After a spate of positive U.S. economic data, most recently featuring better-than-expected March retail sales numbers on Thursday, the U.S. dollar continues to surge towards long-term highs. Currently, the key level to watch on the U.S. dollar index (the primary benchmark measure of the U.S. dollar against a basket of other major currencies) remains at the key 97.70 resistance level.

Key Resistance Level Repeatedly Tested and Respected

The dollar index first tested that pivotal 97.70 level in mid-November of last year. At that time, the index also established a new long-term high not seen since mid-2017. And since November, price has risen to re-test that level almost precisely on two more occasions thus far – in mid-December and early March. Currently, the USD index appears poised to make yet another run at that 97.70 resistance level.

U.S. Dollar Strength/Weakness Important for Equity Markets

It may not seem very important to the average stock investor, but the relative value of the U.S. dollar against other major currencies at any given time is a critical component of equity value. This is especially the case for major U.S. multinationals that do significant business outside of the U.S. And given that earnings season is now in full swing, the value of the U.S. dollar takes on increased significance.

What May Happen Next?

If the U.S. dollar index makes a sustained breakout above the noted 97.70 resistance, dollar strength could begin to weigh more heavily on U.S. stocks. If, however, the dollar index remains contained below resistance, and actually begins to retreat, we could see a further tailwind for equity markets.

IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors. 

Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.

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