DXY: A Litmus Test for a Stronger Dollar

■ The US Dollar Index (DXY) has broken above its 200-day moving average, but the 25-day and 75-day moving averages also warrant attention.  

■ Even if the DXY falls below its 200-day moving average again, it is expected to continue its upward trend as long as it finds support at the 25-day moving average. 
 
Following the large-scale attacks on Iran by the US and Israel, Iran has also launched retaliatory attacks against Middle Eastern countries. US President Trump stated that he does not rule out sending US ground troops. Although there are still doubts about Iran's ability to maintain its military strength, market concerns about the protracted conflict in the Middle East have intensified. In the commodity futures market, due to safe-haven demand, gold futures prices once surged above $5,400 per ounce. Although the market fell sharply on the 3rd, gold demand remains strong against the backdrop of geopolitical risks, and it is currently trading in the $5,100 range. In addition, Iran has effectively blocked the Strait of Hormuz and warned that it will attack passing ships, and the New York crude oil futures index (WTI) once approached $78 per barrel. 

 
The foreign exchange market shows a comprehensive strengthening of the US dollar. The US Dollar Index (DXY) rose to 99.68, a new high since November 28 last year. As President Trump hinted that he might begin providing escort for oil tankers, if necessary, the New York market closed slightly lower at 99.05. However, from a technical chart analysis perspective, the DXY has broken above the 200-day moving average (SMA) of 98.36. According to Granville's Eight Rules for judging buying and selling signals: (1) If the price (DXY in this case) briefly breaks above the downward moving average and then falls back, it is a sell signal for a rebound; (2) If, after a decline, the moving average tends to flatten out and the DXY breaks through from below, it can be regarded as a new buy signal. Both of these situations are helpful in judging the trend. 

 
In the current highly volatile market environment, it is also necessary to pay attention to short- and medium-term trend indicators such as the 25-day SMA of 97.43 and the 75-day SMA of 98.34 (all data from March 3). Currently, the 200-day SMA and 75-day SMA are still showing a slight downward trend, while the 25-day SMA is gradually rising from the lows of February 26th and 27th (97.26) and is now entering an upward trend. In the short term, even if DXY falls below the 200-day SMA again, as long as it finds support at the 25-day SMA, based on experience, DXY is expected to maintain an upward trend for about a month.