US Dollar Gathers Strength, Mid-term Bullish Trend Confirmed
The current US Dollar Index is in a medium-term upward channel. Despite a minor short-term pullback due to profit-taking, the technical bullish alignment, interest rate and fundamental advantages, and available room in market positioning all support the continued medium-term strength of the dollar. In Q3, it is expected to challenge previous highs and open up further upside.
1. Technicals: Bullish Alignment, Approaching Key Resistance
As of July 3, the US Dollar Index (DXY) closed at 100.857, with all major technical indicators showing positive signals.
Regarding moving averages, DXY stands above its 20-day (100.634), 60-day (99.351), 120-day (98.917), and 250-day (98.748) moving averages, forming a clear bullish setup. Both short-term and medium-long term moving averages are turning upwards, indicating strong bullish momentum.
In terms of price structure, since rebounding from the early May low of 96.875, DXY has risen approximately 4.1%, now approaching the 52-week high of 101.800. Bollinger Bands show the current price is running between the middle and upper bands (upper band at 102.040), not yet reaching the overbought zone. The RSI (14-day) is at 57.7, remaining in the strong region but still below the overbought threshold, suggesting short-term upside momentum is not yet exhausted. The next key resistance is the 52-week high at 101.800; if a breakout and consolidation above this level occur, it would technically confirm the completion of an inverse head-and-shoulders pattern.
2. Interest Rates and Fundamentals: US Relative Advantage Strengthens
On interest rates, the Federal Reserve has maintained a relatively hawkish stance in its fight against inflation. Although there are market disagreements about the policy path in the second half of 2026, core PCE remains at a relatively high 3.4%, far above the 2% target. With sticky core inflation persisting, the probability of the Fed keeping rates unchanged or even marginally tightening in the second half of the year cannot be ignored. In contrast, the Eurozone faces stagflation risk, with the ECB caught between weak growth and high inflation, leaving little room for monetary policy adjustment. The persistent widening of the US-EU rate differential will provide solid interest rate support for the dollar.
On economic growth, due to fallout from Middle East conflicts and energy price shocks, Standard Chartered has sharply lowered the Eurozone's 2026 GDP growth forecast from 1.1% to 0.4%, with inflation close to 3% in the same period, making stagflation risks a serious concern. In comparison, US employment and corporate earnings remain resilient, and the capital spending cycle driven by tech stocks provides additional growth momentum. The notion of "US exceptionalism" gains renewed relevance amid the contrasting US and European outlooks.
Since 2026, US-EU Citi Economic Surprise Index divergence has remained significant
3. Market Positioning: From Short to Long Initial Phase, Substantial Upside Potential
According to client surveys by several foreign institutions, current market sentiment has shifted from collectively bearish to mildly bullish. However, overall dollar long positions remain relatively light, with institutions only tentatively entering the market rather than piling into crowded trades. Most asset managers and hedge funds still hold neutral stances, favoring cross-currency relative value strategies. Should upcoming inflation and employment data strengthen expectations for further Fed hikes, market consensus may quickly shift, concentrated incremental dollar buying could enter, and DXY upside momentum may intensify—market positioning has not yet fully priced in the bullish case, leaving ample room for further gains.
Bank of America client surveys show a sharp rise in bullish dollar sentiment, but not yet to extremes
Furthermore, G7 FX implied volatility has recently dropped to its lowest since January 2022 (EURUSD 1Y ATM 6%), and VIX briefly fell below 16%. Should volatility rebound from low levels in the second half, the dollar is likely to benefit from both "safe-haven" and interest rate differential drivers.
G7 implied volatility at historical lows
In summary, the combination of bullish technical structure, the US's continuing outperformance in rates and fundamentals compared to non-US regions, and the market's "short to long" but still far from crowded positioning all constitute threefold support for a medium-term bullish outlook on the dollar. It is recommended to watch for buying opportunities on dips in the dollar.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Wall Street giants collectively raise rate hike forecasts, US Treasury futures continue to fall, gold drops over 1% to break 4000
After the US October CPI exceeded expectations, Goldman Sachs and Nomura added a forecast for an interest rate hike in March next year, while Deutsche Bank included a forecast for a rate hike in January next year. Currently, the market has fully priced in a 25 basis point rate hike in December, with a 13% probability for a 50 basis point hike. On Wednesday, the US Treasury spot market was closed, but Treasury futures continued to fall, with corresponding yields rising by about 2 to 4 basis points, and spot gold came under pressure, dropping by 1.1%.
No Need to Worry About the Cooling Down of AI Data Center Construction? The US Import Boom Is Unlikely to Subside in the Short Term, Real Impact May Come in 2029
It takes an average of 4.8 years from finalizing investment to starting construction of a data center project, and an additional 2.6 years from construction start to becoming operational. Servers usually cannot be installed until after the building structure and racks are completed. For trade partners such as Taiwan (China), South Korea, and Mexico who rely on US data center supply chain demand, the inertia in construction timelines provides at least a one- to two-year buffer for future exports.
Federal Reserve Major Debate: When Should the Tenure of “Number Three” Williams End?
The main point of contention is whether Williams should step down in June 2028, upon completing a full 10-year term, or in June 2027, when he reaches the mandatory retirement age of 65. Analysts point out that the Federal Reserve Board holds ultimate discretion; if he leaves early, Fed Chair Waller would be able to assert greater control over the appointment to this critical position. However, forcing Williams to shorten his term could easily be interpreted as political manipulation. Williams himself is expected to serve until June 2028.
Crypto prices
More
