US Dollar Index Price Forecast: Bears prevail with the 200-day SMA capping rallies

The US Dollar (USD) nurses marginal gains on Wednesday and holds a mild recovery attempt from the three-month highs hit last week, but seems unable to extend gains past the 200-day Simple Moving Average (SMA), just above 99.00, which keeps the broader bearish structure intact.

Market volatility remains subdued this week, with investors awaiting US Personal Consumption Expenditures (PCE) Price Index data, due later on Wednesday, and the Jackson Hole summit later in the week, to make USD investment decisions.

Strategists at BNY observe that overall "U.S. exposures have stabilized," with the latest weekly update to their cross-border net U.S. asset positioning indicating that non-U.S. domiciled investors are no longer "pushing to further reduce their exposures." They also note that "outright FX hedges, measured by cross-border dollar holdings, have remained largely unchanged over the past two weeks."

Looking ahead, BNY experts advise investors to "watch dollar cash flows, FX hedging, inflation expectations and U.S. data," warning that "a sustained deterioration across these signals would confirm a shift from tactical diversification to structural U.S. exposure reduction."

Technical Analysis: Bulls need to breach the 200-day SMA

The Dollar Index is attempting to bounce up from three-month lows, but upside attempts remain capped below the 200-day simple moving average (SMA), at 99.15, which keeps the bearish trend in play. Momentum indicators remain within bearish territory with the Relative Strength Index (14), around 34, and the Moving Average Convergence Divergence (MACD) remains below zero, hinting at waning bearish momentum but not yet a clear reversal.

A clear break of the mentioned 200-day SMA and above a previous support area between 99.25 and 99.40 would improve bulls' confidence, shifting the focus to the August 18 and 19 highs, at the 99.70 area.

On the downside, bears were capped above the late May lows in the 98.70 area. A bearish reaction below that level would bring the May lows, at the 97.65 area, into focus.