US Dollar Index Price Forecast: Tests ascending channel bottom near 101.50
- US Dollar Index could test the immediate barrier at the nine-day EMA of 101.98.
- The 14-day Relative Strength Index around 55 indicates steady and non-overbought momentum.
- The immediate support lies at the lower boundary of the ascending channel around 101.70.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground after posting modest gains and trading near 101.80 during the European hours on Tuesday.
The short-term tone looks mildly constructive as DXY holds above the 50-day Exponential Moving Average (EMA), yet the advance is capped by the nine-day EMA, which acts as immediate resistance. The 14-day Relative Strength Index (RSI) around 55 suggests steady, non-overbought momentum, while the latest readings of the FXS Fed Sentiment Index near 127.51 hint that broader policy expectations are no longer aggressively supportive, keeping upside in check.
Additionally, the technical analysis of the daily chart indicates that the dollar index is testing the lower boundary of the ascending channel pattern, signaling either a potential bullish bounce off trendline support to resume the uptrend, or a risk of a bearish breakdown if the level fails to hold.
The US Dollar Index could rebound and test the immediate resistance at the nine-day EMA of 101.98. A break above the short-term price average would strengthen the bullish bias and support the dollar index to test the 18-month high of 102.94, reached on October 14, followed by the upper boundary of the ascending wedge at 103.90.
On the downside, the US Dollar Index is testing the immediate support at the lower boundary of the ascending channel around 101.70, followed by the 50-day EMA of 100.94. Further declines would expose the five-month low of 98.56, which was recorded on August 20.
Warsh flags investment surge and AI focus but keeps Fed path data-dependent
Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, slightly softer relative to the historical average of 6.1/10, reflecting a cautious tone despite upbeat comments on structural growth and an investment surge. The admission of being “over-scarred from the global financial crisis” underscores a risk-aware bias that tempers any hawkish read from the emphasis on price stability and upcoming “crystallizing” October and December meetings. Warsh’s focus on AI as a demand-side force and on financial stability tail risks suggests the Fed is open to structural optimism but unwilling to pre-commit on the policy path for the rest of 2026.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated 127.51, signaling that the speech leaves the Fed firmly in hawkish territory despite the modestly softer tone versus the established baseline in the FXS Speechtracker. For markets, this combination of high index level and non-committal guidance implies the Dollar remains underpinned by expectations of sustained restrictive policy, even as data and AI-related developments will be crucial for the next policy “crystallizing” moments.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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