US Dollar Index outlook: Dollar Index bulls pause under key resistance ahead of Fed policy meeting

US Dollar Index

The dollar index remains steady and holding within a narrow range just under 6-month high on Monday.

Larger picture shows near-term action moving in the sideways mode for the third consecutive week, as bulls faced strong headwinds on approach to key barriers at 105.13/47 (Fibo 38.2% of 114.72/99.20 / base of thickening daily Ichimoku cloud.

Traders also reduced speed ahead of key events, last week’s US inflation data and ECB rate decision and coming policy decisions of the Fed, BoE and BOJ this week.

Markets particularly focus on the US central bank, which is widely expected to keep rates on hold in September, but signals about their next steps will be crucial for dollar’s near-term direction.

Should Fed follow the ECB’s way and announce that the tightening cycle is over and possible start of rate cuts to be expected in mid-2024, the dollar will likely lose ground.

On the other hand, hawkish tones from Fed should not be ruled out as recent data show that the economy is still in a good shape and labor sector is tight, while inflation, although still elevated, being in downward trajectory, which contributes to scenario of one more hike by the end of the year and keeping high interest rates for extended period, until inflation returns to 2% target.

The greenback should benefit in such scenario, with firm break of 105.13 Fibo barrier to generate bullish signal and spark fresh acceleration higher.

Res: 105.13; 105.47; 105.85; 106.22

Sup: 104.45; 104.17; 103.86; 103.34