US Dollar Forecast: DXY Rally Deepens as Euro Bears Face Technical Squeeze

Dollar Index Breaks Above 99 After Risk Premium Fade and Trump Currency Remarks

The U.S. Dollar Index (DXY) climbed to a session high of 99.048 on July 29, breaching near-term resistance and extending gains that began with the July 26 breakout. This marks its strongest level since late June, driven by a rapid compression in trade-related risk premiums and policy signals out of Washington that have reintroduced short-term FX volatility.

Trump’s Currency Comments Trigger Volatility Premium Rebuild

President Trump re-entered the dollar debate last week with contradictory remarks, stating he prefers a strong dollar while also touting the trade benefits of a weaker one. The remarks reflect an unresolved FX policy stance, which traders increasingly interpret as a source of volatility. Trump’s simultaneous push for trade resolution and fiscal expansion has reintroduced inflation risk and widened uncertainty around the dollar’s direction, but the market response has leaned bullish as implied volatility spikes.

Euro Weakness and Yield Spread Drive Short-Term Dollar Bid

 

The euro’s short-covering rally failed to hold as investors repriced the ECB outlook. J.P. Morgan delayed its next ECB cut call to October, and Goldman Sachs dropped expectations for a second 2025 cut. With the Fed holding firmer on rates, the 2-year Treasury-Bund yield spread remains over 20bp in favor of the U.S., reinforcing dollar demand. The move above the 50-day simple moving average (now at 98.3) has triggered fresh algorithmic flows into dollar longs, especially as volatility in equity and rates markets settles near year-to-date lows.

Technical Breakout Above 50-Day SMA Puts 99.421 Back in Focus

The DXY’s surge past the 98.950 swing high and clean break above the 50-day simple moving average (currently at 98.30) confirms a bullish near-term setup. Intraday action on July 29 extended to 99.048 before settling just below the figure, suggesting fresh momentum flows as stops were triggered above prior resistance. The 50-day average, which had acted as a cap since mid-May, now flips to immediate support.

The July 24 low at 97.109 remains the key pivot for near-term trend validation, with the mid-range consolidation base at 97.664 reinforcing support. Upside focus is now on the June 23 high at 99.421. A confirmed daily close above that level would expose the psychological 100.00 handle, followed by 100.540 as the next structural barrier.

Outlook: Risk Premium Compression Lifts Dollar, But Structural Headwinds Remain

The dollar’s current strength is supported by both policy divergence and the resolution of trade-related risk premiums. However, unresolved fiscal concerns, inconsistent messaging from U.S. leadership, and long-term reserve currency risks still loom. While upside toward 100.540 is plausible in the near term, structural imbalances and policy contradictions are likely to cap broader gains over the intermediate horizon. Traders should view current strength as opportunity-driven rather than trend-defining.

More Information in our Economic Calendar.