US Dollar Index outlook: Dollar was lifted by Fed's hawkish pause

US Dollar Index

The dollar index rose to new multi-month high in early Thursday, boosted by Fed’s decision to keep rates on hold at September’s meeting but signaling another hike by the end of the year, which markets saw as hawkish rate pause.

The US central bank left its policy rate unchanged at 5.25%-5.50%, in line with expectations, but left the door open for one more hike, expecting interest rate to peak at 5.50%-5.75% range this year.

The policymakers see the overall economic conditions as satisfactory for now that will allow them to keep restrictive policy for extended period, without high risk of significantly harming the economy.

In addition, the Fed signaled it will continue fight with inflation even if prices decline further in coming months, with first rate cuts expected the earliest in mid-2024, if conditions continue to improve, though they downgraded initial projection for 100 basis points cut next year to 50 basis points.

Fresh rise of dollar index price generated initial signal of bullish continuation, after larger bulls paused under pivotal Fibo resistance in past almost three weeks.

Bulls cracked 105.13 barrier (Fibo 38.2% of 114.72/99.20 descend) with close above here seen as a minimum requirement to keep fresh bulls intact for attack at another strong obstacle provided by weekly Ichimoku cloud (spanned between 105.47/106.22).

Firm break above the cloud (which will continue to thicken in coming weeks) is needed to confirm bullish signal.

Daily studies remain bullish overall but fading positive momentum and stochastic about to enter overbought territory, add to headwinds and require caution.

Near-term action should stay above 104.80 zone (10DMA / bull-trendline off 99.20, July 18 low) to keep bullish bias, while increased downside risk to be expected on break below 104.44/17 (20DMA / Sep 14 trough).

Res: 105.47; 105.60; 106.22; 106.96.
Sup: 105.00; 104.80; 104.44; 104.17.