US Dollar Index Price Forecast: Supported by rising Oil prices

The US Dollar (USD) extends its Monday recovery move on Tuesday, as rising Oil prices due to prolonged fears of energy supply disruption keep global inflation expectations de-anchored.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades slightly higher to near 99.90.

Meanwhile, fears of a near-term Federal Reserve (Fed) interest rate hike have eased as the latest United States (US) Nonfarm Payrolls (NFP) data for July revealed a reduction in the overall labor force and a downward revision in labor additions figures of previous months.

Strategists at ING say the latest US labor market data has delivered “clearly dovish and dollar-negative” signals, reinforcing their conviction that the Fed is done hiking. They highlight that, as James Knightley notes, “the -20k payroll print was not the only concern,” with “more than 100k of downward revisions” leaving “average payroll growth at just 20k over the past three months, with health and social care still doing most of the heavy lifting.”

Against that backdrop, ING argues that “our dovish Fed call is strengthening, and so is our bearish bias on the Dollar.” They point out that “despite Friday’s repricing, 11bp are still priced in for September, 28bp for December and 40bp for April,” and conclude that “there remains ample room for dovish repricing to harm the Dollar if we are right about the Fed.”

The CME FedWatch tool shows that the odds of the Fed leaving interest rates unchanged in the September meeting are 48.3%, up from 30.4% seen a month ago.

Going forward, investors will focus on the US Consumer Price Index (CPI) data for July, which will be released on Wednesday.

US Dollar Index Technical Analysis

In the daily chart, the Dollar Index DXY trades at 99.87, keeping a bearish near-term tone as it holds beneath the 20-day exponential moving average (EMA) at 100.32. The index has retreated from earlier highs, and the EMA now acts as immediate overhead supply, while the Relative Strength Index (RSI) around 41 shows subdued momentum, hinting at a lack of strong buying interest on current dips.

On the topside, the first hurdle is the 20-day EMA at 100.32, and a sustained break above this level would be needed to ease downside pressure and open the way for a more constructive recovery. On the downside, the US Dollar index could slide towards 99.00 and the May 29 low at 98.75 if it fails to hold Friday's low at 99.40.