United States Dollar Index Price Forecast: Gains ground above 101.50 amid overbought RSI signals
- US Dollar Index gathers strength to around 101.50 in Wednesday’s early European session.
- Expectations of a US rate hike continued to build with Fed officials sounding increasingly hawkish.
- The DXY keeps the bullish vibe, but a temporary sell-off cannot be ruled out with overbought RSI momentum.
- The initial support level is seen at 101.48; the first upside barrier to watch is in the 101.95-102.00 zone.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.50 during the early European trading hours on Wednesday. The DXY extends the rally as traders raise their bets on the US interest rate hikes this year.
Markets are pricing in a 36.3% chance of a 25-basis-point hike at the July meeting, up from 8.5% a week ago, and 70.3% for September, up from 29.1%, according to the CME FedWatch tool.
"The dollar's strength right now, at the end of the day, it's still hawkishness, if you look at Fed expectations with Fed funds futures right now, they are some of the highest odds that we've seen in a while," said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.
Technical Analysis:
In the daily chart, Dollar Index Spot extends its advance well above the Bollinger Bands’ (20) simple moving average and the 100-day moving average, keeping the near-term bias firmly bullish as price rides the upper band. The Relative Strength Index (14) holds in overbought territory near 74, which suggests strong upside momentum but also hints that the latest leg higher is becoming stretched.
On the downside, the upper Bollinger Band at about 101.48 has turned into immediate dynamic support, ahead of the Bollinger mid-line / 20-day simple moving average at 100.00. Below there, the 100-day moving average at 98.95 and the lower Bollinger Band around 98.52 form a deeper support area that would be expected to cushion a more pronounced correction if profit-taking accelerates.
On the upside, the immediate resistance level is located in the 101.95-102.00 zone, representing the May 12 high, 2025 and the psychological level. The next hurdle to watch is the April 7 high, 2025 at 103.54.
(The technical analysis of this story was written with the help of an AI tool.)
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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