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DBS analyst Philip Wee warns that the recent 2% two-day surge in the Dollar Index (DXY) toward the 100 level appears overextended, suggesting technical indicators show signs of exhaustion. The index, which measures the USD against a basket of major currencies, has faced resistance near key psychological levels, with traders questioning the sustainability of the rally. Wee highlights that the rapid upward movement has created a 'buy the dip' environment, but warns that a pullback could test critical support at 98.50 or 97.50. The analysis is significant for forex traders as the DXY's performance directly impacts global currency markets. A correction in the USD could weaken risk-on currencies like EUR and GBP, while strengthening safe-haven assets. Central banks in emerging markets, particularly in the Gulf, may also face pressure to intervene if the dollar's strength persists, affecting regional trade and investment flows. For investors, the key focus will be on whether the DXY can break above 100 to confirm bullish momentum or if it retests 98.50 as a support level. Traders should monitor Fed rate expectations and inflation data from major economies, which could drive further volatility. The upcoming US non-federal reserve bank data and European Central Bank policy statements will be critical in shaping the next phase of the dollar's trajectory.
