US Dollar Index Price Forecast: DXY slides to 101.75; seems vulnerable below 100-hour SMA

DXY meets with a fresh supply on Monday amid renewed hopes for Iran diplomacy.
Fed rate bets could help limit losses as the geopolitical risk premium remains in play.
Bulls need to reclaim the 100-hour SMA hurdle to negate the intraday negative bias.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on Friday's modest bounce from the 101.60 region and attracts fresh sellers at the start of a new week. The index sticks to intraday losses through the early European session, currently trading near 101.75, down over 0.20% for the day amid renewed hopes of a diplomatic breakthrough to end the US-Iran war.

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In fact, Iranian negotiators reportedly held talks with Qatari mediators for the third consecutive day on Sunday and proposed a two-day plan to reopen the Strait of Hormuz, provided that the US fulfills a set of conditions. Moreover, US President Donald Trump said that negotiations with Iran were going well and that Iran wanted a deal, boosting investors' confidence and undermining demand for the traditional safe-haven US Dollar (USD).

Meanwhile, the geopolitical risk premium remains in play as Trump has not ruled out further military action after the November 3 midterm elections. Apart from this, a fresh escalation of the Russia-Ukraine conflict, along with bets that the US Federal Reserve (Fed) will raise borrowing costs again in December, should act as a tailwind for the DXY. This, in turn, warrants some caution for bears as focus shifts to this week's key US macro data.

From a technical perspective, the index keeps a bearish intraday tone below the 100-hour Simple Moving Average (SMA) at 102.10. Moreover, the Moving Average Convergence Divergence (MACD) has slipped marginally into negative territory, while the Relative Strength Index (RSI) holds around 41. Momentum indicators together hint that the attempted recovery in the DXY is losing traction rather than building a sustained upside push.

Hence, the 100-period SMA immediate hurdle would need to be reclaimed to ease immediate downside pressure. On the downside, the 101.60 emerges as an immediate support ahead of the October monthly swing low, near the 101.45 region. A convincing break below the latter would set the stage for deeper losses and drag the DXY further below the 101.00 round figure, towards the 100-day SMA support, currently near the 100.70 region.

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

DXY 1-hour chart

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.