US Dollar Price Forecast: DXY Sinks to $98.20 – Are GBP/USD and EUR/USD Bulls Unstoppable?

Dollar Reacts to Geopolitics and Inflation Expectations

The US dollar is being pulled in all sorts of directions right now – geopolitical risk, the state of energy markets & how investors think the Fed will act on interest rates are all having a say. And right now all those factors are combining to give the dollar a pretty good push. The breakdown in US-Iran talks plus Iran being blockaded has sent a shiver of fear through global markets. This is the kind of environment where the US dollar tends to get a boost because its sort of the go-to safe haven currency when people get scared about global trade routes and energy supplies.

Despite that, the sharp rise in oil prices is raising the stakes for the Federal Reserve – it’s fueling worries that inflation is about to get a whole lot worse and that means the Fed might not have a chance to cut rates anytime soon – or maybe even has to start thinking about raising them. That’s lifting the dollar up for the time being, especially against currencies where a lot of the energy used comes from imports.

But the bigger picture is still up for grabs. Markets are still pretty twitchy about any US data that comes out & what the central bank has to say – one piece of good news or a diplomatic break-through could shift all the dollars current momentum & remind investors that the dollar is still as much at the mercy of the numbers as its is to what’s going on geopolitically.

DXY Breakdown Below $98.50 Signals Weak Momentum

The US Dollar Index (DXY) is hovering around $98.20, dropping beneath the rising trendline and all but confirming a short term breakdown. But take a look at those candles lately…they’re all bearish with little to no wick to the downside, indicating a pretty solid selling pressure.

Price has also dropped below that 50-smoothing moving average ($98.80) and is now testing the horizontal support around $98.00, while the 200 sma at $99.50 is capping any upside. The RSI is starting to head towards 35 which shows that the momentum is weakening up, but they’re still not all that oversold.

The previous consolidation range has now been broken to the downside, so if support doesn’t hold, then it’s likely they’ll be headed towards $97.70. Resistance will be at $98.80-$99.20 – this is where the sellers had been stepping in previously.

Trade idea: Sell below $98 – your target is going to be $97.70 and you’ll want to set your stop above $98.90.

GBP/USD Rally Extends Toward $1.3550 Resistance

GBP/USD is trading near $1.3535 and the rally is still going strong within that clean ascending trendline. And look at the price action – consecutive bullish candles with higher highs. They’re been getting some strong momentum above that 50 moving average ($1.3450) and have even reclaimed the 200 moving average near $1.3380 earlier.

The RSI is getting close to 65/70 territory which means the momentum is getting quite strong but you can bet your bottom dollar they’re getting overbought. But the recent breakout above $1.3485 confirms it’s all about the continuation, and now the resistance zone we need to worry about is $1.3550-$1.3600. As long as they don’t drop below that rising trendline near $1.3450 then we’re still looking good for the trend to stay intact.

Trade idea: Buy on a pullback near $1.3480, target $1.3600 – and set your stop below $1.3420.

EUR/USD Breakout Holds Above $1.1750 Resistance

EUR/USD is currently trading around $1.1780 and they’ve managed to keep their breakout above the $1.1750 resistance zone. Price is respecting that rising trendline and forming higher lows, as well as putting up strong bullish candles with shallow pullbacks. They’ve cleared both that 50 moving average and the 200 moving ave, which tells us they’ve shifted the structure.

The RSI is still holding above 60 which means the buying pressure is still strong and we don’t see any immediate signs of exhaustion. That breakout zone near $1.1720-$1.1750 is now acting as support, while any upside targets – and there are a few – are going to be around $1.1860. The structure still looks a lot like continuation rather than a reversal, and as long as price holds above trendline support then the momentum is going to keep favouring the buyers.

Trade idea: Buy above $1.1750, look to target $1.1860 – and use a stop beneath $1.1700.