101.75: DXY drops, looks vulnerable below 100-hour SMA | US Dollar Index Price Forecast

Renewed optimism over Iran diplomacy brings fresh selling pressure to DXY on Monday.
With the geopolitical risk premium still in place, Fed rate expectations could cushion the decline.
100-hour SMA: DXY bulls must recover this barrier to reverse the intraday bearish bias.

101.75 is the US Dollar Index's (DXY) current trading level. Down over 0.20% on the day, the index remains under pressure in early European trading as hopes revive for a diplomatic breakthrough to end the US-Iran war. Tracking the Greenback against a currency basket, DXY has drawn fresh selling at the start of the week rather than extending Friday's modest rebound from the 101.60 region.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Reports indicate that Iranian negotiators met Qatari mediators on Sunday for a third consecutive day. They put forward a two-day plan to reopen the Strait of Hormuz, conditional on the US meeting a set of requirements. US President Donald Trump also said talks with Iran were progressing well and that Iran wanted an agreement. These developments lifted investor confidence, reducing demand for the US Dollar (USD) as a traditional safe haven.

A geopolitical risk premium nevertheless persists: Trump has left open the possibility of further military action after the November 3 midterm elections. Renewed escalation in the Russia-Ukraine conflict should also support DXY, alongside expectations that the US Federal Reserve (Fed) will increase borrowing costs again in December. With attention turning to this week's key US macroeconomic releases, these factors call for caution among bears.

Below the 100-hour Simple Moving Average (SMA) at 102.10, the index retains a bearish intraday bias. The Moving Average Convergence Divergence (MACD) has edged into negative territory, while the Relative Strength Index (RSI) remains around 41. Taken together, these momentum signals suggest DXY's recovery attempt is fading, rather than developing into a sustained advance.

Recovering the immediate barrier at the 100-period SMA is therefore necessary to relieve near-term selling pressure. Initial support lies at 101.60, followed by October's monthly swing low near the 101.45 region. A decisive breach of the latter would open the way for further declines, taking DXY further below the 101.00 round figure towards support at the 100-day SMA, currently near the 100.70 region.

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

1-hour chart: DXY

US Dollar: Key Questions

US Dollar: Currency Overview

As the official currency of the United States of America, the US Dollar (USD) also circulates alongside local banknotes as the ‘de facto’ currency in a significant number of other countries. No currency is traded more heavily worldwide. According to 2022 data, it represents over 88% of global foreign exchange turnover, equivalent to average daily transactions of $6.6 trillion. After the Second World War, the USD replaced the British Pound as the world's reserve currency. Gold backed the US Dollar for most of its history, until the Bretton Woods Agreement in 1971 brought the Gold Standard to an end.

Federal Reserve Decisions and the US Dollar

Monetary policy, set by the Federal Reserve (Fed), is the single largest influence on the US Dollar's value. The Fed's dual mandate is to maintain price stability by controlling inflation and to promote full employment. Interest-rate adjustments are its main means of pursuing these two objectives. If prices climb too rapidly and inflation exceeds the Fed's 2% target, the central bank raises rates, supporting the USD. Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates, putting pressure on the Greenback.

Quantitative Easing: Implications for the US Dollar

When conditions become extreme, the Federal Reserve can print additional Dollars and introduce quantitative easing (QE). Through QE, the Fed sharply expands the flow of credit through a financial system that is no longer functioning effectively. This unconventional policy addresses a credit shortage caused by banks refusing to lend to one another for fear of counterparty default. It serves as a last resort when interest-rate cuts alone are unlikely to deliver the required outcome. During the Great Financial Crisis in 2008, QE was the Fed's preferred response to the credit crunch. The process entails printing additional Dollars to purchase US government bonds, mainly from financial institutions. The US Dollar typically weakens as a result of QE.

Quantitative Tightening: Implications for the US Dollar

In the reverse process, quantitative tightening (QT), the Federal Reserve ceases bond purchases from financial institutions. It also refrains from reinvesting the principal of maturing bonds in its portfolio into new purchases. This generally supports the US Dollar.