US Dollar Index Price Forecast: Does DXY’s drop to 101.75 signal vulnerability below the 100-hour SMA?

DXY faces renewed selling pressure on Monday as hopes of diplomatic progress with Iran revive.
Losses could be contained by Fed rate expectations, with geopolitical risk still carrying a premium.
To reverse the negative intraday bias, bulls must take the index back above the 100-hour SMA barrier.

Fresh selling pressure weighs on the US Dollar Index (DXY) at the start of the week as renewed optimism over a diplomatic resolution to the US-Iran war lifts market sentiment. The index, which measures the Greenback against a basket of currencies, has been unable to build on Friday's modest recovery from the 101.60 region. Early in the European session, it remains lower on the day by over 0.20%, trading near 101.75.

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

Demand for the traditional safe-haven US Dollar (USD) has weakened as investors grow more confident about the prospects for talks. On Sunday, Iranian negotiators reportedly met Qatari mediators for a third consecutive day, putting forward a two-day plan to reopen the Strait of Hormuz on condition that the US meets a set of requirements. US President Donald Trump also said negotiations with Iran were progressing well and that Iran wanted an agreement.

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

Technical signals suggest that the DXY's recovery attempt is running out of momentum rather than developing into a sustained advance. Trading below the 100-hour Simple Moving Average (SMA) at 102.10 keeps the intraday outlook bearish. The Moving Average Convergence Divergence (MACD) has also edged into negative territory, while the Relative Strength Index (RSI) is hovering around 41.

A move back above the immediate 100-period SMA barrier is therefore needed to relieve near-term downward pressure. Initial support lies at 101.60, followed by October's monthly swing low around 101.45. A decisive break beneath that low would open the way for a deeper decline, taking the DXY further below the 101.00 round figure towards support at the 100-day SMA, currently around 100.70.

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

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US Dollar: Frequently Asked Questions

What role does the US Dollar play?

As the official currency of the United States of America, the US Dollar (USD) also serves as the ‘de facto’ currency in a significant number of other countries, circulating alongside their local banknotes. No other currency is traded more widely: according to 2022 data, it accounts for over 88% of global foreign exchange turnover, with transactions averaging $6.6 trillion a day. 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.

How does Federal Reserve policy affect the US Dollar?

Monetary policy, determined by the Federal Reserve (Fed), is the single biggest influence on the US Dollar's value. Ensuring price stability by controlling inflation and promoting full employment are the Fed's two mandates. Adjusting interest rates is its main means of pursuing these objectives. The Fed raises rates when prices climb too rapidly and inflation exceeds its 2% target, supporting the USD. By contrast, 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 affect the US Dollar?

When conditions become extreme, the Federal Reserve may print additional Dollars and introduce quantitative easing (QE). Through QE, the Fed sharply expands the supply of credit in a financial system that has become clogged. This unconventional policy is used when credit dries up because banks, fearing counterparty defaults, refuse to lend to one another. It serves as a last resort if 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 involves printing additional Dollars to purchase US government bonds, mainly from financial institutions. The US Dollar typically weakens as a result of QE.

How does Quantitative Tightening affect the US Dollar?

Under quantitative tightening (QT), the reverse process, the Federal Reserve ceases bond purchases from financial institutions. It also refrains from reinvesting the principal received as its existing bond holdings mature into fresh purchases. This generally supports the US Dollar.