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US Dollar Index (DXY) Price Forecast: Dips to 100.00, hawkish Fed bets to limit losses

  • DXY struggles to capitalize on the modest Asian uptick back closer to the monthly peak.
  • Inflation fears continue to fuel hawkish Fed expectations and should help limit losses.
  • The technical setup also backs the case for the emergence of dip-buyers at lower levels.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, retreats slightly from the vicinity of the monthly top, around the 100.30 region, retested earlier this Monday. That said, hawkish US Federal Reserve (Fed) expectations, bolstered by the war-driven surge in energy prices, should limit the corrective slide.

From a technical perspective, the intraday pullback constitutes the formation of a bearish double-top pattern on the 4-hour chart. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator remains in positive territory, though its line has begun to ease back toward the signal line, hinting at waning upside momentum after the recent push toward 100.20. However, the Relative Strength Index (RSI) around 60 stays in positive but non-extreme territory, aligning with a moderate upward bias rather than a stretched rally.

Moreover, the DXY holds above the rising 100-period Exponential Moving Average (EMA) on the 4-hour chart, underscoring an improving underlying trend after the late-December base around 99.10. Hence, any subsequent fall below the psychological 100.00 area could stall near a secondary support around 99.70 ahead of a deeper floor at 99.40, where the 100-period EMA converges with prior consolidation.

On the upside, immediate resistance stands at 100.20, the recent swing high, followed by 100.50 as the next upside objective if buyers regain control. A sustained move above 100.20 would reopen the topside and strengthen the bullish case, whereas a drop through 99.70 would signal a loss of momentum and refocus attention on the 99.40 support band.

(The technical analysis of this story was written with the help of an AI tool.)

DXY 4-hour chart

Chart Analysis Dollar Index Spot

(This story was corrected on March 30 at 05:20 GMT to specify, in the third paragraph, the correct name of the asset as DXY, not DXU.)

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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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