USD index nears highs again, Société Générale economists say a bounce back to 114.8 peak is not out of the question

In 2022, the U.S. dollar has been very strong, despite a slowing global economy and rising inflation around the world. Twelve days ago, the U.S. Dollar Index (DXY) peaked at 114.8 and since then, the index has pulled back and a recent analysis by economists at Societe Generale indicates that the index is likely to move back towards the 114.8 peak.

Greenback index rebounds after recent pullback, Société Générale economists see a ‘bullish momentum prevails‘.

The dollar has been a formidable foe against a myriad of fiat currencies this year. Many fiat currencies such as the euro, pound, yen, yuan, Australian and Canadian dollars have all suffered from the strength of the greenback. On September 27, the U.S. dollar index (DXY) reached a high of about 114.8, a level not seen since 2001. The DXY is an index that measures the value of the greenback against six different fiat currencies.

The basket of fiat currencies traded against the U.S. dollar includes the euro, Swiss franc, Swedish krona, British pound, Canadian dollar and Japanese yen. However, the basket of six currencies is not evenly distributed, as the euro makes up 57.6% of the basket, and the yen is the second largest component at 13.6%. The index gives traders, analysts and economists a fair assessment of the strength of the dollar against the basket of currencies.

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The DXY was introduced in 1973 when U.S. President Richard Nixon abolished the gold standard and the Bretton Woods Agreement was dissolved. At the time, the DXY started with a base of 100 and the index has risen significantly since then, reaching an all-time high in February 1985. At that time in 1985, the DXY touched 160.41 and to break the record of the last high recorded 12 days ago, the index would have to rise by more than 39%.

Economists at Societe Generale believe the DXY is headed back to the 114.8 area after the recent plunge. “A bounce toward 113.60 and the high near 114.80 is not out of the question“, Socgen economists detailed on October 7. The economists add that a break below the 110 region would suggest a deeper pullback, but the DXY is currently trading around 112.747 Sunday afternoon at 11 a.m. EST.

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Only if the support area at 110.00/109.30 is breached will there be a risk of a deeper pullback. In such a scenario, the next target could be at the September 107.60“, said economists at Societe Generale, who wrote in a note on the U.S. dollar and the market outlook. “Daily RSI still in bullish territory, indicating prevalence of bullish momentum“, the economists added.

Currently, five-day measures show the euro is down 2.39% against the dollar, while the Japanese yen is down 1.02% and the British pound is down 3.19%. An ounce of gold is down 1.04%. against the greenback this weekend, and silver is down about 2.47%. The global crypto market capitalization of all existing crypto-currencies has gained 0.08% in the past 24 hours and the crypto economy is currently valued at $944.60 billion.

Stock markets closed in the red Friday afternoon, with the Nasdaq losing 3.8%, the Dow Jones Composite 2.05%, the NYSE 3.34% and the S&P 500 2.8%. More than one trillion nominal U.S. dollars were wiped off the U.S. stock market on Friday, a value in USD terms greater than the size of the entire current crypto-economy.

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