26 Feb 2025

The US Dollar Index (DXY) has rebounded to approximately 106.50 in the early European trading session on Wednesday. The bearish sentiment surrounding the DXY remains prevalent as it trades below the 100-period Exponential Moving Average (EMA). The initial downside target to monitor is 106.20, while immediate resistance is identified at 106.85.

Market analysts suggest that concerns regarding inflation, exacerbated by US President Donald Trump’s proposed increase in tariffs, may influence the Federal Reserve to maintain elevated interest rates for an extended period. This scenario could bolster the US Dollar against its competitors.

Investors are keenly awaiting the release of the US Personal Consumption Expenditures (PCE) data on Friday, which is the Federal Reserve's preferred measure of inflation, as it may provide new insights into the trajectory of US interest rates.

From a technical perspective, the DXY continues to exhibit a bearish trend on the 4-hour chart, remaining constrained beneath the significant 100-period EMA. Furthermore, the Relative Strength Index (RSI) is positioned below the 50 midline at approximately 46.40, suggesting that additional declines cannot be dismissed in the short term.

The lower boundary of the Bollinger Band at 106.20 serves as an initial support level for the US Dollar Index. A breach of this support could lead to a decline towards 105.41, the low recorded on December 6, 2024. The subsequent support level to observe is 104.19, which corresponds to the low of November 7, 2024.

Conversely, the first resistance level is situated at 106.85, marking the upper limit of the Bollinger Band. Should the index achieve further gains, it may reach 107.15, aligning with the 100-period EMA. The next significant resistance is anticipated at the psychological level of 108.00.