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US Dollar Index Price Forecast: Steadies above 100.50, with bullish bias intact above key support

  • US Dollar Index holds steady around 100.75 in Monday’s early European session. 
  • The bullish tone of the DXY remains intact above the key 100-day SMA. 
  • The immediate resistance level to watch is 101.05; the first downside target is located at 100.50. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 100.75 in the early European trading hours on Monday. The DXY trades on a flat note as traders continue to assess the developments surrounding the US-Iran conflict. 

The US military said on Monday that it has completed its ninth consecutive night of strikes against Iran, targeting command centers, air defence sites, maritime assets, missile facilities, and communications networks.

Last week, US President Donald Trump threatened to broaden the war unless Iran stopped attacking ships transiting the Strait of Hormuz. Iran's Islamic Revolutionary Guard Corps (IRGC) said on Sunday that the critical waterway will not be safe for petrochemical products or 'single drop of oil and gas' transit as long as US actions in the region continue. Rising tensions in the Middle East could boost a safe-haven currency such as the US Dollar in the near term. 

On the other hand, traders have largely priced out expectations of a Federal Reserve (Fed) rate hike this month following softer-than-expected US June consumer and producer price inflation data. This, in turn, could undermine the DXY. The probability for a Fed rate hike in July stood at 14%, versus a 25% implied chance last week, according to the CME FedWatch tool.  

Chart Analysis Dollar Index Spot

Technical Analysis:

In the daily chart, the near-term tone of Dollar Index Spot stays modestly constructive as price holds above the 100-day simple moving average (SMA) and the lower Bollinger Band, suggesting underlying demand on shallow dips. However, upside momentum looks contained, with the latest Relative Strength Index (RSI) reading at 51.38 pointing to only marginal bullish pressure after the recent consolidation phase.

On the topside, initial resistance is located at the Bollinger middle band, the 20-day SMA, around 101.05, with a further hurdle at the upper Bollinger Band near 101.60. On the downside, immediate support is seen at the lower Bollinger Band around 100.50, ahead of the 100.00 psychological level. The stronger structural support is seen at the 100-day SMA at 99.60, where a break would undermine the current bullish bias and open the door to a deeper retracement.

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

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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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