USDX Tests 97.60 as Fed Policy, Geopolitics, and Trade Risks Support the Dollar

First of all, investors are trying to assess the future trajectory of US Federal Reserve monetary policy. Minutes from the January meeting of the Federal Open Market Committee (FOMC) confirmed that policymakers remain cautious and see no need for an immediate interest rate cut, given that inflation continues to hold firmly above the 2.0% target. At the same time, an improvement in economic growth forecasts and a recovery in the labor market were noted, although Board members Christopher Waller and Steven Miran spoke in favor of a –25 basis point adjustment. The statement also removed wording about elevated employment risks that had appeared in the previous three releases. According to the CME FedWatch Tool, the probability of a minimal rate cut from the current 3.50–3.75% range at the March meeting is now estimated at just 5.0%, while the first such move is not expected before June. Overall, investors are pricing in a total reduction of about 50 basis points this year. On Monday, Christopher Waller emphasized that his vote will depend solely on upcoming labor market data due early next month, while also allowing for the possibility of weaker employment statistics, which could influence the Committee’s decision. Recall that nonfarm payrolls increased by 130.0K in January, beating forecasts of 66.0K and the previous 48.0K, while the unemployment rate fell from 4.4% to 4.3%.

Undoubtedly, a key driver behind the strengthening of the US dollar at present is the risk of an escalation in the military conflict between the United States and Iran if a “nuclear” deal is not reached. A new round of negotiations is set to take place tomorrow in Geneva, while US forces are actively building up their presence near Iran’s shores. Earlier this week, reports emerged that non-essential staff had been evacuated from the US embassy in Beirut ahead of possible strikes on infrastructure aimed at pressuring Tehran into faster decision-making. Iranian authorities, in turn, have stated they are ready to deliver a decisive response to any aggression, considering enemy bases and assets to be legitimate targets.

A third factor that could significantly affect the dollar’s position was the US Supreme Court ruling that President Donald Trump’s decisions to impose import tariffs on key partners were unlawful, as he lacked the authority to invoke the International Emergency Economic Powers Act (IEEPA) without congressional approval. The US leader announced a new adjustment of tariffs from 10.0% to 15.0%, this time under the Trade Act of 1974, and warned of potentially tougher restrictive measures against countries violating trade agreements. Reduced imports and the activation of domestic production chains increase demand for the national currency for settlement purposes, although such barriers may also heighten volatility amid expectations of retaliatory measures.

Support and resistance levels

On the daily chart, Bollinger Bands are flattening: the price range is slightly expanding while remaining wide enough for the current level of activity. The MACD maintains a strong buy signal, staying above its signal line and attempting to consolidate above the zero mark. The Stochastic oscillator, having retreated from its highs, remains downward-oriented and is showing little response to a potential resumption of upward momentum in the near term.

Resistance levels: 97.73, 98.00, 98.24, 98.41.

Support levels: 97.38, 97.10, 96.80, 96.33.

Trading scenarios and USDX outlook

Short positions can be considered after a confident breakdown below 97.38, targeting 96.80. Stop-loss: 97.73. Time horizon: 1–2 days.

A rebound from 97.38 as a support level followed by a breakout above 97.73 may signal new long positions with a target at 98.41. Stop-loss: 97.38.