US Dollar Index (DXY) Price Forecast: Holds steady around 98.30; not out of the woods yet
- The USD is looking to build on the overnight bounce from its lowest level since early October.
- Dovish Fed expectations might cap gains for the DXY and warrant caution for bullish traders.
- The technical setup suggests that the path of least resistance for the USD is to the downside.
The US Dollar (USD) edges higher during the Asian session on Wednesday and recovers further from its lowest level since early October, around the 97.90-97.85 region, touched the pervious day. The USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to the 98.30 zone in the last hour, though any meaningful appreciation seems elusive amid dovish Federal Reserve (Fed) expectations.
From a technical perspective, the recent failure to build on the momentum beyond the very important 200-day Simple Moving Average (SMA) and a subsequent breakdown below the 100-day SMA favors the USD bears. Moreover, oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone. This, in turn, suggests that any further move up could be seen as a selling opportunity and remain capped.
Moreover, the 100-day SMA flattens and remains beneath the declining 200-day one, preserving a bearish alignment. Price holds below both, with the shorter SMA at 98.63 acting as an immediate hurdle. The Moving Average Convergence Divergence (MACD) stays below the Signal line and under the zero mark, while the negative histogram contracts, hinting at fading downside momentum. The Relative Strength Index (RSI) stands at 35, near the lower end of neutral, with a modest uptick suggesting tentative stabilization.
Downside risk persists while below trend filters, as the 200-day SMA trends lower at 99.25 and caps rebounds. The MACD remains under the Signal line and below zero, with the narrowing negative histogram reinforcing a tentative loss of bearish pressure. RSI’s recovery is shallow, and a push above the 50 midline would be needed to strengthen a rebound. A sustained break above 99.25 would shift the medium-term tone to the upside; failure to reclaim moving-average resistance would keep the bias weak.
(The technical analysis of this story was written with the help of an AI tool)
DXY daily 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.
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