US Dollar Index Price Forecast: Remains below 102.00, nine-day EMA
- The US Dollar Index may find initial resistance at the nine-day EMA of 102.03.
- The 14-day Relative Strength Index at 58.17 indicates positive bullish momentum.
- The immediate support lies at the ascending channel bottom around 101.70.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is inching lower after opening at a bullish gap and remaining in positive territory near 102.00 during the Asian hours on Monday.
The near-term bias stays constructive as the US Dollar Index holds above the 50-day Exponential Moving Average (EMA) while probing the nine-day EMA as immediate resistance. The 14-day Relative Strength Index (RSI) at 58.17 leans bullish without being overbought, suggesting ongoing positive momentum, while the FXS Fed Sentiment Index stabilizing around 127.51 hints that Fed-related expectations are no longer aggressively driving fresh upside.
Additionally, the technical analysis of the daily chart indicates that the dollar index is remaining within the ascending channel pattern, signaling ongoing bullish momentum.
The US Dollar Index could test the initial barrier at the nine-day EMA of 102.03. 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 103.80.
On the downside, the US Dollar Index may find immediate support at the lower boundary of the ascending channel around 101.70, followed by the 50-day EMA of 100.91. Further declines would expose the five-month low of 98.56, which was recorded on August 20.
Dollar bulls turn cautious as focus shifts to sustainability of USD gains
Economists at DBS Group Research suggest that momentum behind the greenback may be nearing an inflection point. According to DBS, “the coming week could see a shift from extending the USD’s recent rally to reassessing its sustainability,” as investors weigh how durable the latest bout of Dollar strength is likely to be.
(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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