The Dollar Index has risen 3.8% to 104.5 from its lows in early February. Prior to that, the dollar index had been falling since late September, giving back half of the gains from the global rally triggered by the Fed’s sharp monetary tightening.

Although the dollar’s decline in recent months has been deeper than a typical Fibonacci retracement, this move looks like a profound correction within an uptrend. Early this month, the Dollar got support on the decline to the 100 area, a significant round level that acted as almost impregnable resistance in the pandemic. This time it proved to be no less solid support.

n addition, the dollar looked oversold, which provided initial support in early February. However, the US currency’s momentum against its rivals no longer looks like a technical fluctuation but rather a deliberate buying of dollar-denominated securities.

The fundamental reason for buying the US currency is the strong macroeconomic data, with inflation still alarmingly high, which should strengthen the central bank’s will to tighten. Judging by the tone of officials’ comments, the Fed is ready to do so.

The minutes of the last meeting showed that FOMC members felt that a 25-basis point hike was appropriate but that they were prepared to consider a sharper hike if needed. Even with the standard step, the Fed intends to stop tightening policy later than the markets have been expecting in recent months, which has helped to boost equities.

The long-term bullish trend in the dollar suggests that the DXY will return to multi-year highs near 115 by the end of this year.

Even without taking such a global view, the near-term outlook for the dollar remains bullish. Since the beginning of the week, the rally has taken the corrective pullback to a new level. A consolidation of the DXY above 104 opens the way to 106, a retreat to 61.8% of the last four months’ failure after failing to reverse downside resistance at 76.4% of that move. There is a 200-day moving average of 106. We will unlikely see a real bull-and-bear battle for the USD until these levels.

USD BULLISH THEMES

The Dollar is higher for longer, alongside the Fed’s narrative of Stagflation to take USD even higher.

Hot CPI means the Fed pivot is well beyond the horizon. Ugly inflation promises further flight to safety. US at war means a stronger dollar

Outlook for Fed monetary policy is now more hawkish. Powell projects pain, higher rates for the longer set to keep the dollar bid

There is no alternative to the US dollar. No recession for America’s labor market, more dollar gains eyed

Fed Chair Powell prioritizes fighting inflation and is ready to see negative growth. Supportive monetary and growth considerations for USD to re-emerge

Consumers shrug off higher prices, forcing the Fed to accelerate hikes

Uncertainty about peak inflation in the US continues to support the dollar.

USD BEARISH THEMES

Sticky inflation? What is sticky is the downtrend.

Fed will start cutting interest rates quicker than foreign central banks. Backing the US disinflation process and lowering US rates

Shock growth shows worker supply is rising, inflation to fall, and USD to retreat. The end to monetary tightening should bring the USD’s gains to an end

Incremental news outside of the US growing more positive. Fed to end its tightening cycle and US economic trend to worsen

Central banks in the Old World will have to do more work to contain inflation. Fed can take its foot off the gas pedal

Sitting longer in a deeply inverted US yield curve. Growth and interest rate trends should swing sharply against the Dollar

Powell may be planning a post-election Fed pivot. The dollar will eventually lose its reserve currency status