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US Dollar Index Price Forecast: Tests 98.00 support ahead of US Initial Jobless Claims

  • US Dollar Index may find the primary barrier at the 50-day EMA of 98.54
  • Short-term price momentum is weaker as DXY remains below the nine-day EMA.
  • The immediate support appears at the ascending channel’s lower boundary around 97.70.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its losses for the second consecutive day and trading around 98.10 during the early European hours on Thursday. Traders will likely eye the US weekly Initial Jobless Claims due later in the North American session.

The technical analysis of the daily chart shows the US Dollar Index moving within an ascending channel pattern, suggesting a persistent bullish bias. However, the 14-day Relative Strength Index (RSI) is positioned below the 50 level, weakening bullish bias. The short-term price momentum is also weaker as the DXY remains below the nine-day Exponential Moving Average (EMA).

On the upside, the US Dollar Index may target the initial barrier at the 50-day EMA of 98.54, aligned with the 50-day EMA at 98.62. A successful breach above this level would strengthen the short- and medium-term price momentum and support the DXY to approach the three-month high at 100.26, which was recorded on August 1, followed by the upper boundary of the ascending channel around 100.40.

The DXY tests immediate support at the psychological level of 98.00, followed by the ascending channel’s lower boundary around 97.70. A successful break below the channel would cause the emergence of the bearish bias and put downward pressure on the US Dollar Index to navigate the region around the three-year low at $96.38, recorded on July 1.

US Dollar Index: Daily Chart

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

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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