US Dollar Price Forecast: DXY Holds $98.90 on PMI Jump – Are GBP/USD and EUR/USD Ready?

Market Overview

The US Dollar Index (DXY), which is like a benchmark to compare US dollar to other major currencies, is hovering around 99.10, but the overall trend is still looking pretty up.

The main reason for this is that folks are getting a little spooked by the prospect of a drawn out war in the Middle East and that’s causing them to put their money into ‘safe-haven’ assets like the US dollar.

We shouldn’t’ forget to mention that all that good US economic data that came out not too long ago also gave the dollar a nice kick in the pants.

US Dollar Gains Pace as Middle East Tensions Escalate

Things are getting pretty hairy geopolitically in the Middle East. Israel has gone on the offensive against Iran, launching new attacks and also targeting Hezbollah sites in Beirut.

Because of all this stuff that’s going down, folks are getting even more spooked about the prospect of a long, nasty war. And when that happens, investors tend to put their cash into safe havens like the US dollar, which makes it stronger. It’s pretty much a no-brainer.

US Service Sector Growth Gives Dollar a Boost

The US service sector did a pretty impressive job in February. The SM Services PMI, which is a measure of business activity, actually shot up to 56.1 – that’s up from 53.8 the month before and well above what people were expecting (53.5 was what we thought would happen).

This tells us the US economy is still in pretty good shape, which can help give the dollar a bit of a boost.

Most experts expect the Fed to keep interest rates steady for a while yet – but there is one wild card: Donald Trump, who’s been calling for a cut in rates – that could all change things down the line.

US Dollar Index (DXY) Analysis: Trendline Support Holds Near $98.90

Dollar Index (DXY) is currently trading at $98.91 and it has managed to hold above that rising trendline and also that 0.5 fib level at $98.62. Both the 50-EMA and 200-EMA are sitting above the price which is a good sign, telling me that short-term the picture is pretty bullish within an ascending channel.

You can see its been having a bit of a indecisive battle around $99.18 so far, which may suggest there’s a bit of resistance overhead. RSI has taken a bit of a tumble from overbought territory towards 55-60 which is telling me the momentum has started to slow a bit but its not necessarily a reversal sign.

Holding above $98.62 keeps things looking good for an upside run to $99.18 and $99.68. But if the price was to break below $98.37 then that would deal a bit of a blow to that near-term bullish bias of ours.

GBP/USD Analysis: Descending Channel Caps Recovery Near $1.3400

GBP/USD is trying to mount a bit of a comeback at $1.3366, but its still very much trapped within a clear descending channel on a 2-hour chart. Price is sitting well below both the 50-EMA and 200-EMA, which are both sloping downwards, all of which is making the outlook look pretty bleak. You can also see smaller body candles with some decent upper wicks around $1.3400 which tells me sellers are stepping in to slow the pace of any rallies.

We’ve got resistance at $1.3430 and some immediate support at $1.3306 and $1.3254 that the price is sitting on quite heavily. RSI is starting to tick upwards towards that 50 level but its still nowhere near confirming a reversal.

A break above the top of the channel might just open the door to $1.3490 but fail to do that and the selling pressure will just keep building, expecting a drop to $1.3250 at some point.

EUR/USD Analysis: Fibonacci Levels Guide Short-Term Recovery

EUR/USD is currently trading at $1.1621 and so far so good – it has managed to hold up above that 0.236 fib level at $1.1600 after a pretty sharp tumble inside a falling channel. Despite this though, the price is still below both the 50-EMA and 200-EMA which are trending lower, suggesting the bigger picture bias is still pretty bearish.

We’ve recently had the pair defend the $1.1531 low and now its just consolidating in a tight range between $1.1600 and $1.1679. Reduced bearish momentum, in the form of tighter trading ranges, and a RSI that has bounced back from oversold territory towards 45-50 all suggest things could get interesting.

To see a break above $1.1680 would open the door to $1.1714 and $1.1759, but if the price fails below $1.1600 then we can expect renewed selling pressure to bring the price back down towards $1.1530.