The dollar has gone from slinging cheese to lobbing cookies.
Sellers finally got ahold of the US Dollar Index $DXY on Tuesday, sending it on its steepest single-day decline since October 2022.
Recall what followed for the dollar…
The DXY formed a major top and fell victim to not one but two subsequent 1 percent-plus daily drawdowns.
Check out the DXY chart with the one-day rate-of-change in the upper pane:
The DXY dropped almost 1.5% during Tuesday's session. That’s a huge move for a currency (with the exception of the Turkish lira and perhaps the Polish zloty).
Based on the action witnessed last fall, it wouldn’t be surprising for the DXY to experience a reprieve from selling pressure in the coming days, followed by renewed downside action.
As I mentioned last week, “If and when it (the DXY) falls below approximately 104.25, it’s time to consider making a change.”
On Wednesday, the DXY hovered just above that critical level.
A decisive close below our line in the sand signals an end to dollar headwinds and the beginning of the next leg higher for equities.
