US Dollar Index outlook: Dollar remains overall bullish on hawkish Fed

US Dollar Index

The US dollar regained traction in early Tuesday’s trading, following a pullback on Monday, which signaled a partial profit taking after 0.8% rally last Friday.

The US currency keeps firm tone against the basket of its major peers, boosted by expectations that the US Federal Reserve would continue to raise interest rates more than initially expected, which resulted in dollar’s strong rally in past four weeks.

Recent solid economic data from the US signal that the economy is resilient and fuels Fed’s hawkish stance, with revised expectations that Fed funds rate would peak just above 5.4% in the third quarter.

The US policymakers see the inflation still high, despite the price pressures eased in past few months and their primary task is to put it under control and push towards the central bank’s 2% target.

Technical studies on daily chart are predominantly bullish, with the price action continuing to hold above initial support – bull-trendline drawn off 100.66 (2023 low, posted on Feb 2) and focusing pivotal barriers at 105.40/53 (Jan 6 high / top of rising weekly cloud), violation of which would open way towards next targets at 106.03/33 (Fibo 38.2% retracement of 114.72/100.66 bear-leg/daily cloud top/200DMA).

Formation of reversal pattern on monthly chart as the dollar index is on track for the first monthly gain (around 2.7%) after a steep fall in past four months, adds to bullish signals, although reversal pattern requires confirmation on break above key barrier at 106.03 (Fibo 38.2% of 114.72/100.66, reinforced by 10MMA).

On the other hand, weekly studies show overbought stochastic and 14-period momentum still in the negative territory, warning that larger bulls may hold in prolonged consolidation before extending higher. The action should find solid supports at 104.37/20 zone (rising daily Tenkan-sen / Fibo 23.6% of 100.66/105.30) to keep larger bulls intact, while loss of these supports would put bulls on hold for deeper correction.

Res: 104.84; 105.40; 105.53; 106.03.
Sup: 104.37; 103.98; 103.54; 102.98.