US Dollar Index (DXY) Price Forecast: Struggles below 99.00, one-month low amid risk-on
- DXY comes under intense selling pressure amid hopes for an end to the Middle East war.
- Trump and Iran signaled a two-week ceasefire, undermining the safe-haven Greenback.
- Easing inflation fears temper Fed rate hike bets and exert additional pressure on the buck.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts heavy selling on Wednesday and plummets to a nearly one-month trough during the Asian session in reaction to the US-Iran ceasefire news. The index currently trades around the 98.80 region, down 0.80% for the day, and seems vulnerable to weaken further.
US President Donald Trump announced that he will suspend planned military strikes against Iran for two weeks, triggering a massive risk-on rally across the global financial markets and underpinning the safe-haven U.S. dollar (USD). Furthermore, the reopening of the Strait of Hormuz leads to an intraday slump of over 10% in Crude Oil prices. This helps ease inflationary fears and tempers bets for a rate hike by the US Federal Reserve (Fed), which turns out to be another factor weighing on the buck.
An intraday breakdown below the 23.6% Fibonacci retracement level of the January-March move up, and a subsequent fall below the 200-period Exponential Moving Average (EMA) on the 4-hour chart could be seen as a key trigger for the USD bears. Adding to this, the Moving Average Convergence Divergence (MACD) line has slipped below its signal line just under the zero mark, and the negative histogram bars expand. This suggests building downside momentum and also validates the negative outlook.
Furthermore, the Relative Strength Index (RSI) hovers in the mid-20s, oversold yet still pointing lower, which signals strong selling pressure even as the risk of a corrective bounce increases. Meanwhile, immediate support emerges around the 38.2% Fibo. retracement level at 98.72, and a clear break below this area would open the way toward the 50.0% retracement at 98.13.
On the topside, initial resistance stands at the 23.6% retracement at 99.46, with the 200-period exponential moving average near 99.30 reinforcing that barrier on approach. A recovery above 99.46 would ease immediate bearish pressure and expose the 100.00 handle, while failure to reclaim the moving average keeps sellers in control toward deeper Fibonacci supports.
(The technical analysis of this story was written with the help of an AI tool.)
DXY 4-hour chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Recommended Articles
