US Dollar Index Price Forecast: Remains below 98.50 near nine-day EMA
- US Dollar Index may find initial support at the lower descending channel boundary around 97.50.
- The 14-day Relative Strength Index near 40 suggests bearish momentum is easing but remains in control.
- The primary barrier lies at the nine-day EMA of 98.58.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending gains for the second successive day and trading around 98.30 during the European hours on Friday. The technical analysis of the daily chart shows that the dollar index is remaining within the descending channel pattern, suggesting a bearish bias.
The US Dollar Index extends a pullback below the short-term averages, preserving a bearish near-term bias. The nine-period and 50-period Exponential Moving Averages (EMAs) now sit overhead after being broken, suggesting former dynamic support has turned into resistance on minor rebounds.
The 14-day Relative Strength Index (RSI) around 40 hints that downside momentum is soft but still dominant.
The primary support lies at the lower boundary of the descending channel around 97.50. A sustained break below the channel would reinforce the bearish bias and put downward pressure on the US Dollar Index to navigate the region around the 95.56, the lowest since February 2022, which was reached on January 27.
On the upside, the US Dollar Index may target the nine-day EMA at 98.58, followed by the 50-day EMA at 98.87 and the upper boundary of the descending channel around 99.10. Further advances above this confluence resistance zone would cause the emergence of the bullish bias and support the DXY to target a nearly 10-month high of 100.64, which was recorded on March 31.
(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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