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The U.S. dollar index just made new multi-decade highs.

How high can the dollar fly?

I’m looking at the U.S. Dollar Index’s (DXY) monthly chart:

U.S. Dollar Index (DXY): Monthly

U.S. Dollar Index (DXY) Monthly Forex Chart

U.S. Dollar Index (DXY) Monthly Forex Chart

In terms of relative currency strength, the dollar has been kicking its major counterparts’ butts since mid-2021 when the Fed first shifted its projections to include interest rate hikes.

The U.S. dollar index recovered from its 89.50 lows and then broke above 2016 and 2020’s highs in May when the Fed upped its tightening game with 50bps rate hikes.

And that was just earlier this year.

DXY is now trading closer to 114.50, which is waaaay above the 110.00 psychological level that markets had been watching.

In fact, it’s the dollar’s highest level since May 2002! I know because Britney Spears and Justin Timberlake also broke up in 2002. 😭😭😭

How high can the dollar fly?

Stochastic is already telling us of the dollar’s “overbought” conditions but I don’t think the appetite for the dollar will change on a technical signal.

For one thing, Fed members have been on the newswires confirming that the FOMC gang is firmly in rate hike mode until the U.S. inflation trends change.

The U.S. economy’s relative strength is also reinforcing the dollar’s safe-haven status amidst a highly uncertain global growth environment.

Finally, it looks like the U.S. government doesn’t plan on addressing the dollar’s strength. Treasury Secretary Janet Yellen still believes that “markets are functioning well” while White House National Economic Council Director Brian Deese shot down the possibility of using a 1985-type global agreement to adjust currency values.

Until broader economic themes change, the dollar will likely keep gaining across the board.

Keep an eye on DXY possibly hitting the 120.00 zone that was an effective technical resistance in 2001 and a key inflection point in ’82 and ’86.

How about you? Do you think the dollar’s rally still has legs?

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