The DXY dollar index rose to 102.35, approaching its yearly high around 102.50. The main factor remains high yields on US government bonds. DXY shows the dollar's exchange rate against a basket of six major currencies. Almost 58% of its weight is accounted for by the euro.
What is happening with the dollar index
On Tuesday, DXY fell to around 101.75. On Wednesday, October 7, the index returned above 102.00 and again approached its yearly high. The 50-day moving average runs around 100.50 and continues to move upward. This preserves the bullish technical picture for the dollar.
Why the dollar is rising
The main factor is the US bond market. The yield on 10-year US government bonds rose to 5.35%. This is the highest level since April 2002. The yield on 30-year securities also reached a high of approximately 24 years. Rising yields mean a decline in the value of the bonds themselves. At the same time, higher yields make dollar assets more attractive to investors.
How yields support the currency
When US government securities offer a higher interest rate, investors receive an additional incentive to keep capital in dollar assets. This increases demand for the currency. High yields also raise the cost of money for the economy and put pressure on assets that do not generate interest income. Therefore, the movement in bonds now affects not only the dollar, but also gold, stock indices and cryptocurrencies.
Oil adds pressure
The second factor remains expensive oil. Brent is again trading above $100 per barrel amid tensions around the Strait of Hormuz. Rising energy prices increase inflation risks. If inflationary pressure persists, it becomes harder for the market to price in a rapid decline in rates and yields. This provides additional support for the dollar.
What is happening with EUR/USD
A strong DXY is especially important for the euro, since the European currency accounts for almost 58% of the index's weight. Therefore, a rising dollar is usually accompanied by additional pressure on EUR/USD. Right now, movement in currency pairs is largely determined not by individual economic releases, but by US debt yields and the price of oil.
Where the nearest levels are
On the upside, the main reference for DXY remains the 102.50 area. A breakout of this level could open the way to new highs. On the downside, the important zone remains the 100.50 area, where the rising 50-day average runs. As long as the index is significantly above it, the advantage remains with dollar buyers.
What's next
The market will continue to monitor three main factors:
- US government bond yields;
- the situation in the oil market;
- expectations for further Fed policy.
As long as yields remain near multi-year highs, it is the debt market that continues to set the tone for the dollar.
Do you trade dollar pairs?
A strong dollar trend can be traded both intraday and through longer-term positions. But each approach has its own prop program conditions. The daily drawdown limit, permission to hold positions overnight and over the weekend, and the cost of such holding can differ noticeably between companies. It is better to choose the challenge rules in advance to match your trading style.