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US Dollar Price Forecast: DXY Weakens Ahead of NFP – Are GBP/USD and EUR/USD Set to Break Higher?
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Key Points:
- The US Dollar Index holds near 97.20 as markets price in Fed leadership changes and rising uncertainty ahead of NFP.
- Kevin Warsh’s Fed nomination boosts DXY sentiment, but traders remain cautious about his stance on inflation and rate cuts.
- Upcoming US Nonfarm Payrolls are seen as the key trigger that could reshape near-term dollar and FX direction.
Market Overview
The US dollar began the week strong, helped by several factors. Right now, the US Dollar Index (DXY), which measures the dollar against major currencies, stands at 97.22. The main reason for this rise is the White House’s nomination of Kevin Warsh, a former Federal Reserve governor, to replace Jerome Powell as Fed Chair.
Warsh’s Nomination Boosts the US Dollar
Investors think Warsh’s appointment could lift the dollar because he has supported a strong currency in the past while at the Fed.
Some investors expect Warsh may support cutting interest rates, especially since President Trump said the new chairman would back larger cuts. They also think he will try to reduce the Fed’s balance sheet. Because of this, the dollar rose sharply after his nomination.
Upcoming Economic Data Remains in Focus
Looking ahead, investors are waiting for several employment reports. The main focus is the Nonfarm Payrolls (NFP) report for January, due on Friday, which is expected to give an important clue about the Fed’s next move.
Traders are also watching the ISM Manufacturing PMI, which comes out on Monday at 15:00 GMT. Economists think manufacturing has slowed again, but only a bit. The PMI is expected to rise slightly to 48.3 from 47.9 in December.
Since a reading below 50 means the sector is still shrinking, this report could influence how markets see future Fed policy.
US Dollar Index (DXY) Technical Outlook: $97 Bounce Faces Key Resistance
The Dollar Index (DXY) is trading around $97.10 after bouncing from a low of $95.60, where buyers stepped in. On the 4-hour chart, the price has moved above a short-term downward trendline, which points to a corrective bounce instead of a full trend reversal. Recent bullish candles show some stability, but momentum is still weak.
DXY is now testing resistance between $97.20 and $97.60, which matches the 0.618 Fibonacci retracement of the recent drop. The 50-EMA is still below the 200-EMA, so the overall trend remains bearish. The RSI has moved up from oversold levels to about 45, showing some improvement in momentum but not much strength. If DXY cannot move above $97.60, it could pull back to $96.35 or even $95.60.
Trade idea: Consider selling near $97.60, with a target of $96.40. This idea is invalid if the price rises above $98.30.
GBP/USD Technical Outlook: $1.37 Holds as Bulls Defend Key Fibonacci Zone
GBP/USD is trading around $1.3690, consolidating after a strong rally that stopped just below $1.3860. On the 4-hour chart, recent small candles show some hesitation after the sharp move up. The price is staying above the $1.3630 to $1.3650 area, which matches the 0.50 Fibonacci retracement and short-term support.
The pair is still above the rising trendline and the 50-EMA, which keeps the short-term outlook positive. The 200-EMA near $1.3480 supports the overall uptrend. The RSI has dropped from overbought levels and is now close to 50, which suggests momentum is cooling but not reversing.
If GBP/USD breaks above $1.3755, it could move toward $1.3860. If it falls below $1.3630, it may head down to $1.3580.
Trade idea: Look to buy on dips near $1.3630, aiming for $1.3860. This idea is invalid if the price drops below $1.3570.
EUR/USD Technical Outlook: $1.1850 Holds as Trendline Support Comes Into Focus
EUR/USD is trading around $1.1850, consolidating after a sharp rally that peaked just below $1.2050. On the 4-hour chart, recent candles have small bodies and long wicks, showing indecision after the pullback. The price is right on a rising trendline and close to the 50-EMA, which lines up with short-term support between $1.1840 and $1.1820.
The overall outlook stays positive since the pair is well above the 200-EMA near $1.1750. The RSI has dropped from overbought levels and is now around 45, which means momentum has slowed but there is not much selling pressure. If the price bounces from this area, it could move back up to $1.1980. If it falls below $1.1820, it could drop further to $1.1770.
Trade idea: Consider buying if the price holds above $1.1820, with a target of $1.1980. This idea is invalid if the price falls below $1.1760.
About the Author
Arslan Aliauthor
Arslan is a finance MBA and also holds an MPhil degree in behavioral finance. An expert in financial analysis and investor psychology, Arslan uses his academic background to bring valuable insights about market sentiment and whether instruments are likely to be overbought or oversold.
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