The U.S. Dollar Index extended gains on Tuesday and reached fresh two-year highs above the 102.00 level.
The greenback continues to strengthen across the board amid risk aversion and geopolitical concerns, along with prospects of a more aggressive tightening move by the Federal Reserve next week. Analysts expect a 50 bps rate hike on May 4, especially after Chair Jerome Powell noted that he believed it is appropriate to move faster.
The DXY, which measures the value of the U.S. dollar against a basket of currencies, has risen for the fourth day in a row, and it is on track to accomplish its 17th daily gain out of the last 19 trading days. The fact the dollar continues to push higher despite the US Treasuries yields correction across the curve is a signal of how strong the uptrend is.
The DXY peaked at 102.23, its highest level since Mar. 24, 2020, and technical indicators in the daily chart point to a bullish continuation. However, given that the RSI has already reached overbought territory, the index will likely go through a consolidation phase before another leg higher.
A decisive break above the 102.10-20 area would open the door to a test of the 2020 high of 102.97. Beyond the 103.00 area, the next target for bulls could be the 103.25-40 area, where several January 2017 highs converge, ahead of the 2017 yearly high of 103.82.
On the other hand, the 101.00 area stands as the initial support level in case of corrections, followed by the 20-day SMA at the 100.10 zone. Loss of this latter could delay further gains exposing the 99.50 area. However, the dominant trend would remain tilted to the upside as long as the DXY holds above the ascending trendline from May 2021 lows, currently around 96.85.
