US Dollar Index Price Forecast: Weakens below 101.50, but keeps bullish tone ahead of NFP

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US Dollar Index drifts lower to around 101.20 in Thursday’s early European session.
The DXY keeps the positive outlook in the near term, with bullish RSI momentum.
The immediate resistance level emerges at 101.80; the first downside target to watch is 101.05.

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.20 in the early European trading hours on Thursday. The DXY declines as markets turn cautious ahead of the key US employment report for June, which will be the highlight later on Thursday.

The US Nonfarm Payrolls (NFP) is expected to show 110,000 job additions in June, and the Unemployment Rate is projected to hold steady at 4.3% during the same period. If the report shows a weaker-than-expected outcome, this could undermine the US Dollar against its rivals.

That being said, "If the payrolls data exceed market expectations, the dollar could accelerate higher on a rebound," said Mitsubishi UFJ Bank senior analyst Akihiko Yokoo in a note.

Technical Analysis:

In the daily chart, the near-term bias of Dollar Index Spot is bullish as price holds above the 20-day Bollinger simple moving average and the 100-day moving average, keeping the broader uptrend intact. The 14-day Relative Strength Index (RSI) around 65 suggests firm but not yet extreme positive momentum.

On the topside, immediate resistance is located at the June 24 high of 101.80, en route to the 20-day Bollinger upper band near 102.00, where upside attempts could start to face profit-taking. On the downside, initial support is seen at the June 30 low of 101.05. The next contention level to watch is the Bollinger middle band at 100.65, followed by the lower band at 99.25 and the 100-day moving average at 99.20, with a deeper pullback toward this cluster likely needed to weaken the current bullish structure.

(The technical analysis of this story was written with the help of an AI tool.)

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.