The US Dollar Index has experienced a decline, settling at approximately 101.00 during the early European session on Thursday. The DXY maintains a bullish sentiment above the 100-day SMA on the daily chart. The first upside barrier emerges at 101.45; the initial support level to watch is 100.60. The US Dollar Index, an index of the value of the US Dollar measured against a basket of six world currencies, currently trades near 101.00 in the early European trading hours on Thursday. The DXY experiences a decline as risk sentiment improves. However, the potential downside may be constrained by a resurgence of tensions between the United States and Iran.
US President Donald Trump stated that the US will “destroy one bridge or power plant” each time Iran targets a ship navigating the Strait of Hormuz. Meanwhile, Iran has announced its intention to target infrastructure and energy facilities throughout the region. Money markets currently reflect a 33.7% probability of a rate hike from the US Federal Reserve this month, alongside a 76.8% likelihood of at least a quarter-point increase in September, as indicated by the CME FedWatch tool. In the daily chart, the near-term tone of the Dollar Index Spot remains mildly bullish as the price holds above the 100-day simple moving average and operates near the upper half of the Bollinger envelope. However, the Relative Strength Index at 54.36 indicates a neutral-to-positive stance, suggesting a consistent rather than pronounced upward momentum.
On the topside, a daily close above the upper band at 101.45 would reveal the June 24 high of 101.80. Any follow-through buying above this level could pave the way to the 102.00 psychological level. On the downside, initial support is observed at the lower Bollinger band approximately at 100.60. The key contention level is situated at the 100.00 round mark, preceding the more significant trend floor at the 100-day SMA around 99.65. TD Securities indicates that the policy outlook is characterised by patience, with the bank anticipating “the Fed to remain on an extended hold.”
Strategists recognise that “the bar for the Fed to hike is lower,” yet contend that the FOMC will “likely need to see more evidence of continued strength in inflation and the labour market before embarking on a hiking path.“ TD Securities also cautions that in an environment where the Fed is compelled to tighten “due to supply-side inflation concerns, other global central banks, including the ECB, are likely hiking as well,” reinforcing a more synchronised global policy backdrop.