We present a medium-term investment review of the USD Index, a ratio of the American dollar to a basket of core world currencies.

As for the key factors influencing the quotes, the key ones remain the unstable situation on the domestic bond market and monetary policy. During the last US Fed meeting, the interest rate stayed at 5.25–5.50%. However, the further dynamics are ambiguous, and the head of the department Jerome Powell said the regulator plans to reduce the cost of borrowing by 50–75 basis points by the end of the year. Now, market participants are counting on changes in the parameters at the September meeting. According to the Chicago Mercantile Exchange (CME) FedWatch Instrument, the probability of a reduction to 4.75–5.00% is 62.5% and by 25 basis points — 37.5%. The officials do not consider keeping the borrowing cost unchanged despite poor data from the labor and real estate markets. The average initial jobless claims fluctuate within 340.0–350.0K, significantly higher than the average of 220.0–240.0K in early spring. The June inflation was at 3.0% compared to 3.3% earlier, while the core consumer price index fell to 3.3% from 3.4% earlier, which is still very far from the target of 2.0%, and will restrain the growth of the dollar for a long time.

An additional factor influencing the USDX is the situation in the bond market, namely, a significant downward correction. Traditionally, the USD Index and key US bonds have a direct correlation close to one, and almost any fluctuations in bond yields, as a rule, are directly proportional to the price. Thus, the most popular 10-year US Treasuries are trading at a rate of 3.898% today, while the last peak of yield at 4.283% was on July 24. During the same period, the USD Index fell from 104.30 to yesterday’s low of 102.00. The dynamics of the global 30-year bonds are similar, and they are trading at a rate of 4.190%, while on July 24 their yield was 4.547%, while the USD Index lost just under 2.0% over this period, which is almost identical, given the difference in the quotes.

Thus, the yield on US bonds, as well as the prospects for changes in interest rates, do not allow the dollar to continue its rapid upward dynamics, and, most likely, the USD Index will remain in a sideways trend with a slight downward emphasis.

Technical indicators confirm the probability of a correction. On the weekly chart, the price is in the process of forming a diamond pattern, the implementation of which may begin this month.

The main factors indicate a high probability of the downward wave continuing and breaking through the pattern support line of 102.00.

Let’s consider the key levels on the daily chart.

The downward wave within the Head and shoulders reversal pattern has almost completed, and formation implementation coincides with the support line of the Diamond pattern of 102.00, increasing the probability of further decline.

At the resistance level of 105.60, there is a zone for canceling the sell signal. In case of a reversal, growth, and reaching this area, the downward scenario will be canceled or postponed, and it is better to liquidate open sell positions.

If the year’s low of 98.50 is reached, it is better to take profit on open sell positions.

Let’s assess the entry levels for transactions on the four-hour chart.

The entry level for sell trades is at the weekly low of 102.40, and if it is broken and the Head and shoulders pattern is implemented, there will be no significant barriers on the price path to the target of 98.50, and positions can be implemented.

Considering the average daily volatility of the trading instrument over the last month of 54.0 points, the movement to the target zone of 98.50 may take approximately 38 trading sessions but with an increase in volatility, this time may be reduced to 30 days.