US Dollar Index Forecast: DXY Stalls at 99.26 Rejection; GBP/USD, EUR/USD Eye Breakouts

Market Overview

The US dollar hit a speed bump in its previous rally and got itself right back on the bear track at the start of this week. As of Monday, the Dollar Index is hovering at around 98.94, but it’s not exactly a mystery where things went wrong.

Investor concerns over the Fed’s next move are still swirling, partly because of the pretty dismal US jobs data that came in under expectations, suggesting the economy might be slowing down a bit more than people thought.

US dollar Under Pressure Amid Fed Uncertainty and Weak Jobs Data

On the other side, the US jobs report for December showed weaker-than-expected growth, with Nonfarm Payrolls rising just 50,000 versus the 60,000 forecast. Unemployment fell slightly to 4.4%, showing a mixed labor market. Richmond Fed’s Tom Barkin called the growth modest but stable, with hiring mostly in healthcare and AI.

And then there’s the rather awkward situation that’s popped up with Fed Chair Powell. The government even threatened him with a possible legal case over renovations at the Fed’s building – apparently, the Fed had been lowballing some costs.

That little bombshell shook investor confidence, raising more questions about the stability of US institutions, which in turn made traders a bit more cautious, and suddenly the dollar wasn’t looking quite as attractive as riskier assets. On the flip side, the December jobs report wasn’t exactly what people were hoping for.

Nonfarm Payrolls only managed to rise by a measly 50,000, which was way short of the expected 60,000. And while the unemployment rate did tick downwards to 4.4%, it’s hard to get too excited given how mixed the overall labour market is. Richmond Fed’s Tom Barkin characterised the growth as modest but stable, with most of the hiring in healthcare and some in the AI sector.

Geopolitical Tensions Could Bolster the Greenback

Despite recent losses, the US dollar could get support from rising geopolitical tensions. Trump warned Iran against using force on protesters and hinted at action if crackdowns worsen. At the same time, the UK and Germany are planning to increase their military presence in Greenland to boost Arctic security.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index is trading near $98.81, pulling back after rejecting the $99.26 resistance aligned with the 23.6% Fibonacci retracement at $99.00. Price is now testing the 38.2% Fib at $98.84, where a cluster of recent candles shows buyers attempting to hold support.

The 50-EMA is rising beneath price, while the 200-EMA still caps the medium-term trend. The RSI slipped from overbought levels and now sits near 52, suggesting neutral momentum. A deeper decline toward the 61.8% Fib at $98.58 remains possible if support fails.

Trade Idea: Sell below $98.58, targeting $98.17.

GBP/USD Technical Analysis

GBP/USD is trading near $1.3441, rebounding from the rising trendline that has guided price since late November. The bounce formed a strong bullish candle off $1.3399, with follow-through now testing the $1.3452–$1.3460 resistance band. Price sits below the 50-EMA, while the 200-EMA remains supportive beneath, putting the pair in a short-term recovery within a broader uptrend.

The RSI has turned higher from oversold territory, signaling improving momentum, but overhead resistance may limit the first push. A break above $1.3509 is needed to confirm continuation toward recent highs.

Trade Idea: Buy on a close above $1.3460, targeting $1.3509.

EUR/USD Technical Forecast

EUR/USD is trading near $1.1678, rebounding from the rising trendline that has supported price since mid-December. The bounce formed a strong bullish candle off $1.1619, with follow-through now pushing toward the $1.1692–$1.1700 resistance band. Price remains below the 50-EMA, while the 200-EMA sits slightly above, keeping the pair in a short-term corrective phase.

The RSI has turned sharply higher from oversold territory, signaling improving momentum, but resistance overhead could cap gains on the first test. A break above $1.1744 is needed to shift bias upward.

Trade Idea: Buy on a close above $1.1700, targeting $1.1744.