US Dollar Index (DXY) Price Forecast: Struggles around 100-day SMA; above mid-98.00s
|- USD kicks off the new week on a softer note and retreats from a one-week high touched on Friday.
- The technical setup seems tilted in favor of bearish traders and backs the case for further losses.
- A sustained move and acceptance above the 100-day SMA is needed to negate the negative bias.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to build on last week's recovery from its lowest level since early August and trades with a mild negative bias during the early European session on Monday. The Index is currently placed just above mid-98.00s, down over 0.10% for the day, and for now, seems to have snapped a three-day winning streak to a one-week top, touched on Friday.
The 100-day Simple Moving Average (SMA) has flattened at 98.61 after a prior rise, with price now marginally below it. This alignment keeps a mild bearish bias as the average acts as near-term resistance. A daily close above the 100-day SMA would ease the cap, whereas failure to reclaim it keeps downside risks in play. The DXY remains beneath the 100-day SMA, which has started to roll over, maintaining a defensive tone. The slow drift in the average’s slope highlights a lack of trend strength, and the index holding under it preserves pressure.
Meanwhile, the Moving Average Convergence Divergence (MACD) line remains below the Signal line and under zero, though it has been edging higher, suggesting fading bearish pressure. The MACD momentum improves as the line climbs toward the zero mark, but a bullish crossover has yet to materialize. Moreover, the Relative Strength Index (RSI) stands at 42.99, below the 50 midline, reflecting subdued momentum. A recovery toward 50 could stabilize the tone. A decisive break above the 100-day SMA at 98.61 would shift focus to the upside, while failure there would keep sellers in control.
(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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