US Dollar Index Price Forecast: Can DXY maintain its bullish bias above 101.50 ahead of FOMC?

Dip-buying lifts DXY from its intraday lows as the index seeks to extend Friday’s modest rebound.
With the crucial FOMC decision in focus, bullish traders nevertheless appear reluctant to commit.
Further upside still appears to be the more likely course, based on the technical picture.

Buying interest on declines lends support to the US Dollar Index (DXY) on Monday, helping it hold modest gains in early European trading. The index, which measures the Greenback against a currency basket, finds buyers around 101.60-101.55 as it seeks to extend Friday’s rebound from near a three-week low. However, the advance lacks momentum and DXY stays below 102.00, with traders awaiting clearer signals on the Federal Reserve’s (Fed) policy trajectory.

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

Wednesday’s conclusion of the two-day FOMC meeting, followed by Fed Chair Kevin Warsh’s remarks at the post-meeting press conference, will therefore remain the main focus. Thursday’s Advance US Q3 GDP report and Personal Consumption Expenditures (PCE) Price Index will also be important in shaping the DXY’s next directional move.

For now, support for the US Dollar (USD) comes from growing acceptance that the US central bank will increase borrowing costs to address inflation risks arising from high crude oil prices. Tensions between the Iran-backed Houthis in Yemen and Saudi Arabia also keep geopolitical risks in focus, bolstering demand for the safe-haven Greenback and lending further support to DXY.

A mildly bullish bias remains intact as the index trades above both the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the September-October advance. Momentum signals are steady rather than strong: the Moving Average Convergence Divergence (MACD) line sits slightly in positive territory, while the Relative Strength Index (RSI) around 50 points to neutral but stable momentum.

As long as immediate support at the 38.2% retracement of 101.30 holds, the technical picture suggests DXY could edge further upwards. This level coincides with the 200-period SMA on the 4-hour chart. A decisive breach of that support confluence, however, would bring the lower Fibonacci levels of 100.78 and 100.27 into view, with broader structural demand likely to emerge towards 99.53 and 98.60.

Any advance would first encounter resistance at 101.93, the 23.6% Fibonacci retracement, before facing a firmer hurdle near the cycle-high reference point of 102.96. Sustained buying above 103.00 would provide bullish traders with a fresh trigger, paving the way for the established uptrend from September’s monthly swing low to resume.

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

Can DXY Extend Its Gains? 4-hour Chart

US Dollar: Key Questions Answered

What role does the US Dollar play?

Alongside being the official currency of the United States of America, the US Dollar (USD) serves as the ‘de facto’ currency in a significant number of other countries, circulating together with their local notes. No currency is traded more widely: according to 2022 data, the USD accounts for over 88% of worldwide foreign exchange turnover, equivalent to average daily transactions of $6.6 trillion. The USD replaced the British Pound as the world’s reserve currency after the Second World War. Gold backed the US Dollar for most of its history, until the Gold Standard ended with the Bretton Woods Agreement in 1971.

Why do Federal Reserve decisions affect the US Dollar?

Monetary policy, set by the Federal Reserve (Fed), is the single biggest influence on the US Dollar’s value. Adjusting interest rates is the Fed’s main means of meeting its twin mandates: maintaining price stability by controlling inflation and promoting full employment. If inflation exceeds the Fed’s 2% target and prices rise too rapidly, the central bank increases 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.

How does Quantitative Easing work, and what does it mean for the US Dollar?

When conditions become extreme, the Federal Reserve can print additional Dollars and introduce quantitative easing (QE), substantially expanding credit flows through a stalled financial system. This unconventional policy is deployed when credit dries up because banks, fearing counterparty defaults, refuse to lend to one another. 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. Under this approach, the Fed prints more Dollars to purchase US government bonds, mainly from financial institutions. The usual effect of QE is a weaker US Dollar.

How does Quantitative Tightening work, and what does it mean for the US Dollar?

By contrast, quantitative tightening (QT) reverses this process: the Federal Reserve halts bond purchases from financial institutions and allows its existing bonds to mature without reinvesting the principal in fresh purchases. This generally supports the US Dollar.