US Dollar Forecast: DXY Tests 96.5 as PPI and Fed Chair Talk Build – GBP/USD and EUR/USD in Focus

Market Overview

The broad-based US dollar gained some strength on Friday as investors welcomed news that a government shutdown had been averted. US President Donald Trump and Senate Democrats struck a deal to keep the government funded, supporting the Greenback.

Moving ahead, the US December Producer Price Index (PPI) report is expected later today. This data will help investors understand inflation and could influence the dollar’s movement.

Dollar Rises as US Government Shutdown Is Avoided

On the US front, the US dollar gained momentum after the US Senate reached an agreement with President Trump to remove the full-year spending bill for the Department of Homeland Security (DHS).

Consequently, a government shutdown that could have started at midnight on Friday is now likely avoided. Although it is unclear when the House will approve the remaining bills, traders reacted positively, lifting the Dollar.

Markets Focus on Trump’s Fed Chair Announcement

Meanwhile, the market is watching the Fed Chair appointment. President Trump will announce his choice on Friday to replace Jerome Powell. Former Fed Governor Kevin Warsh is seen as the frontrunner after meeting Trump. Traders expect a Trump-aligned Fed could affect future interest rate decisions.

US Dollar Index Technical Analysis: DXY Slips to 96.5 as Bearish Channel Stays in Control

The US Dollar Index (DXY) is holding around 96.50 after dropping sharply from the 98.90 to 99.00 area. On the 4-hour chart, the price is still moving within a clear downward channel, with lower highs limited by a falling trendline.

The recent decline pushed the price below both the 50- and 100-period moving averages, confirming a bearish setup. Fibonacci retracement shows the price near the 23.6% level at 96.35, with the next support around 95.55.

Recent candlesticks have smaller bodies, which suggests the market is consolidating in the short term. The RSI has bounced back from oversold levels but is still below 50, showing that momentum is weak.

Trade idea: Consider selling on rallies near 97.20, with a target at 95.60 and a stop above 98.30.

GBP/USD Technical Analysis: Holds $1.37 Breakout Zone as Bulls Target the $1.40 Extension

GBP/USD is trading around $1.3760 and is consolidating after a strong breakout on the 4-hour chart. The price is staying above the old resistance, now support, near $1.3710 to $1.3720, which lines up with the rising trendline and the 1.618 Fibonacci level.

Recent candles have smaller bodies and mixed wicks, which suggests the market is consolidating after the strong rally. The pair is well above the 50-EMA, and the 100-EMA near $1.3560 marks deeper support for the trend.

The RSI has dropped from overbought levels to around 60, which means momentum is slowing but the overall structure is still strong. If the price stays above $1.37, the outlook remains positive, with resistance at $1.3860 and then between $1.3950 and $1.4030.

Trade idea: Consider buying on pullbacks near $1.3720, with a target at $1.3950 and a stop below $1.3630.

EUR/USD Technical Analysis: Holds 1.19 Trendline as Bulls Eye a Fresh Push Toward 1.21

EUR/USD is trading close to $1.1930 and is consolidating after a strong move higher on the 4-hour chart. The price is still following a rising trendline from mid-January, which keeps the short-term outlook positive.

Recent candles have smaller bodies and mixed wicks, which points to a pause after the rally rather than a reversal. The pair is still above the 50-period EMA, and the 100-period EMA near $1.1835 adds extra support.

The RSI has eased from overbought levels and is now around 55 to 60, which suggests momentum is resetting but the trend is still intact. The nearest resistance is at $1.2030, and support is at $1.1890.

Trade idea: Look to buy on dips near $1.1900, aiming for a target of $1.2080, with a stop below $1.1830.