US Dollar Index Price Forecast: Extends recovery above 20-day EMA

The US Dollar Index (DXY) begins the Federal Reserve's monetary policy week with a robust performance, according to data released on Wednesday. By the end of the European trading session, the DXY had climbed 0.37% to approach 99.46. The accompanying table reveals the percentage change of the US Dollar (USD) against six major currencies on a given day, with the US Dollar proving to be the strongest against the New Zealand Dollar.

A heat map illustrates the percentage changes among major currencies, where the base currency is indicated in the left column and the quote currency in the top row. The recent surge in the US Dollar is attributed to factors such as the Fed's increased hawkish stance on interest rates and surging oil prices. However, the recent neutral comments from US President Donald Trump regarding the Fed's decision are considered the primary driver behind the price jump.

Analysts at MUFG/BTMU report that the surge in US August CPI inflation exceeded expectations, leading to a higher reevaluation of Fed fund rate hike expectations. Deutsche Bank highlights the impact of the Saudi pipeline shutdown and the postponement of the Iran-Gulf states meeting on Gulf shipping routes, which have heightened regional supply security concerns.

Oil prices play a crucial role in the US Dollar's performance, as surging prices de-anchor global inflation expectations, prompting central banks to consider interest rate hikes. The US Dollar outperformed its counterparts when oil prices rose early in the Middle Eastern conflict. However, the primary reason for the US Dollar's strong upward movement is the absence of demand for interest rate cuts in the comments by US President Trump during his speech at the Irish Open golf tournament.

Trump's neutral view on interest rates, contrasting his previous criticism of the Federal Reserve Chairman, strengthens the Fed's credibility, which had suffered due to his strong advocacy for lower interest rates. The US Dollar Index (DXY) is presently trading at 99.46, with the near-term sentiment trending bullish as the price retraces above the 20-day exponential moving average (EMA) at 99.28.

This suggests growing underlying demand after the recent recovery from the high-98 level. The Relative Strength Index (14) at 51.19 has shifted to a neutral-positive stance, indicating that downward momentum has dissipated, and buyers are regaining control. Support levels lie at the 20-day EMA at 99.28 and Friday's low near 99.00, with a potential decline to near the September low of 98.60 if the price drops below 99.00.

Resistance levels suggest an extended advance towards the August 13 high around 100.00. The technical analysis of this story was assisted by an AI tool.