At the time of writing on Monday, the US Dollar Index (DXY), which measures the strength of the US Dollar (USD) against six major currencies, is declining and approaching Friday’s low of 99.62. This drop is largely due to the sharp rise in the Taiwan Dollar (TWD), which has surged over 5% and caused other Asian currencies to strengthen against the Greenback. According to Bloomberg, this is the largest intraday gain for the TWD in over three decades, potentially because exporters are converting their USD holdings into the TWD amidst speculation that the Taiwanese government may allow the currency to appreciate in order to secure a trade deal with the US. This situation is occurring in a low-volume market, as many Asian countries and the UK are closed for a public holiday.
The DXY is being heavily impacted by this development, even though the TWD is not part of the Index. Other Asian currencies, such as the Japanese Yen (JPY), which makes up 13.6% of the DXY, are also trading significantly stronger against the USD. This is a direct consequence of the Trump administration’s demands for exporting countries to appreciate their currency as part of negotiations to avoid tariffs.
The DXY’s first resistance level is at 100.22, which previously provided support in September 2024. A break above 100.00, which is a psychologically significant level, would signal a bullish trend. If the DXY continues to rise, it could reach 101.90, a level that acted as a crucial pivot throughout December 2023 and was also the base for an inverted head-and-shoulders pattern during the summer of 2024.
On the other hand, any negative news could push the DXY below its current support level of 97.73. If this level is broken, the next support at 96.94 may be tested, and further declines could see the DXY reach levels as low as 95.25 and 94.56, which have not been seen since 2022. Overall, the movements of the US Dollar Index are greatly impacted by external factors such as the TWD, making it essential to choose the right broker for your trading strategy. Consider exploring our selection of top brokers, each offering unique advantages to match your needs.