The US Dollar Index (DXY) experienced a decline, trading around 98.10 during the early European session. A bearish outlook is supported by the DXY being below the 100-day EMA and a 14-day RSI reading under the midline at 38.25.

Key support for the index is at 97.80, with additional levels at 97.61 and 96.55. Resistance stands first at 99.38, with further potential gains leading up to 101.70 if the index can break through 100.15.

The Us Dollar As Reserve Currency

The US Dollar is the official currency of the United States and is widely traded, with over 88% global forex turnover in 2022. Post-World War II, it took the British Pound’s place as the world’s reserve currency.

Federal Reserve decisions significantly impact the US Dollar through interest rate adjustments based on inflation and unemployment. Quantitative easing generally weakens the Dollar by increasing the money supply. Conversely, quantitative tightening halts bond purchases, often supporting the currency.

The information should be used cautiously, as markets contain inherent risks and uncertainties. Conduct thorough research before making financial decisions, considering personal financial goals and risk tolerance.

Technical Analysis And Market Sentiment

The slide in the US Dollar Index (DXY) to around 98.10 — now lingering below its 100-day exponential moving average and with a suppressed 14-day relative strength index reading of 38.25 — paints a picture of waning momentum. Not just technically either. When the index stays beneath these markers, it often suggests market participants are becoming less confident in further short-term gains. Momentum indicators below the 50.0 threshold typically back up this interpretation. In this case, the index appears stuck in a downward rhythm.

We’re watching the key levels on the downside carefully. First up is 97.80, a level that’s drawn enough historical attention to serve as a potential staging ground for either a rebound or deeper pullback. If 97.80 fails to hold, then price risks a slide down to the secondary pressure points at 97.61 and, further afield, 96.55 — a level that hasn’t been touched since mid-2023. These supports aren’t evenly spaced, but what matters more is how the index reacts once it reaches them.

On the flipside, if the DXY begins to pull higher, the first test will come at 99.38. It’s not just about reaching this level; the ability to retain traction above it could shape subsequent direction. If price wedges through 100.15, a psychological threshold that frequently acts as a ceiling, then there’s a reasonably straightforward path to 101.70. But that scenario would require a pronounced shift in sentiment or policy outlook — neither currently in plain view.

Powell and colleagues at the Fed remain the primary influence behind Dollar movements, predominantly through interest rate policy. If inflation pressures persist, or if labour market resilience holds up, that could renew support for the currency. For now, though, the recent cool-off in inflation data, paired with cautious rhetoric and signs of slower wage growth, suggests rate hike expectations may be delayed or scaled back.

The macro backdrop doesn’t exist in a vacuum either. When the Fed expands its balance sheet — a process known as quantitative easing — the excess liquidity injected into financial markets tends to weigh on the Dollar. The opposite is true during periods of quantitative tightening, where the removal of stimulus often creates upward support for the currency, assuming other conditions don’t shift dramatically.

Markets don’t trade in a straight line, and reactions aren’t always rational. It’s not just what the Fed does, but how it’s interpreted globally. For example, if other major central banks remain aggressive while the Federal Reserve pauses, that alone can soften the DXY even if US policy isn’t technically easing.

As of now, with technical pressure mounting and resistance looming near 99.38, the downside bias remains intact unless fresh catalysts push the index convincingly higher. Strategy-wise, it’s a moment to lean into clear data releases — not assumptions — and perhaps more heavily weight risk management than usual. Every weekly close in this range builds a case for boundary reassessment, especially as volatility compresses. Timing matters more than conviction right now.

Create your live VT Markets account and start trading now.