US Dollar forecast: Bullish target hit, can the Dollar push to 98.00 or break below 97.00?

Macro narrative: Dollar’s moment of truth

The U.S. dollar’s bullish scenario, forecasted in our previous analysis - US Dollar forecast: Bullish and bearish scenario amid Fed cut bets and trade war tensions and EUR/USD, Gold, Nasdaq, Bitcoin forecast and more, breakout trading setups US Dollar Forecast - has now fully materialized. The U.S. dollar bounced off between 96.8-97.0 levels, tapping into a 4-Hour Bullish Fair Value Gap.

But now that bullish impulse is showing signs of exhaustion.

As shown in the chart below:

The rally reached into a 97.6 level, tapped the resistance, and is now printing early signs of distribution with weaker candles betwee 97.50-97.30.

Key macro drivers

1. Tariff tensions back on radar

The U.S. is set to reintroduce tariffs by August 1, with targets including Japan, Korea, and BRICS allies.

→ Impact: Adds risk premium to global assets, but the dollar has not responded with its usual haven strength—a sign of weakening global faith in its status.

2. Central banks de-risking from USD

UBS reports that 47% of central banks now foresee possible U.S. debt restructuring, while gold reserves are increasing, and USD allocation is falling.

→ Impact: Weakens structural demand for the dollar over time.

3. Fed credibility & policy divergence

With Fed rate cuts expected later in the year, while other regions (e.g., ECB, RBA) hold firm, the interest rate narrative is no longer supporting USD strength.

→ Impact: Reduces carry the advantage of the dollar, especially against EUR and AUD.

4. China monitors Dollar risk

The PBOC reportedly queried institutions about dollar weakness, indicating Beijing may begin reducing USD exposure.

→ Impact: Fuels the broader de-dollarization movement in Asia.

Technical outlook

While the U.S. dollar gained momentum since July 1, the overall structure remains bearish, with macro headwinds - including trade risks, reserve diversification, and fiscal concerns - still weighing heavily on the greenback and limiting the sustainability of any rebound.

After completing the projected bullish move toward 97.70, the U.S. Dollar Index (DXY) is now retracing into a 4H Fair Value Gap (FVG) resting between 97.30–97.10 - a key inflection zone that will likely determine whether the dollar resumes its push toward 98.20 or begins a deeper reversal targeting 96.37.

Bullish scenario: FVG bounce + 97.70 breakout toward 98.201

If the 4H Fair Value Gap (around 97.10–97.30) holds as support and price forms a higher low, we may see a continuation of the bullish structure and a second leg upward.

• Healthy retracement into demand after recent impulse leg.

• Bullish reaction off FVG + strong engulfing candle or higher low formation.

• Delayed tariffs, Fed pushback on rate cuts, or a shift back to risk-off sentiment.

Target: 98.201 - unfilled inefficiency + prior liquidity level.

Bearish scenario: FVG + 96.80 breakdown to 96.377

If the FVG fails to hold and price breaks back below 97.00, the structure would lean bearish, suggesting distribution at premium pricing and opening the door for deeper downside.

• Breakdown from FVG followed by lower high confirms seller strength.

• Weak bounce or rejection near 97.20–97.40, followed by bearish engulfing setup.

• Risk-on flows, de-dollarization pressure, or bearish Fed outlook.

Target: 96.377 — 2025 All-Time Low and Key Low

Impact on major forex pairs

With the dollar’s bullish scenario fully played out and macro risks regaining dominance, such as trade tensions, central bank reserve shifts, and a softening Fed narrative, the bias now shifts back to USD weakness unless the FVG holds and momentum resumes.

If DXY holds above the 97.10–97.30 zone and pushes toward 98.20, temporary USD strength may cap gains in the majors. But if the 97.00 level fails, the downside could accelerate across the board, fueling major FX breakouts.