• DXY prolongs its recovery from a three-week low and gains positive traction for the third straight day.
• Fed hike bets, recovering US bond yields, and geopolitical risks act as a tailwind for the safe-haven USD.
• Traders seem hesitant to place aggressive bullish bets ahead of the crucial two-day FOMC meeting.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts buyers for the third straight day, building on its recovery from a three-week low, touched last Thursday. The index touches a nearly two-week high during the Asian session, though it lacks follow-through and currently trades around 102.00 as traders opt to move to the sidelines ahead of the highly anticipated FOMC policy meeting.

The US Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is widely expected to keep interest rates steady. Hence, the focus will be on the accompanying policy statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference in the absence of updated economic projections. Apart from this, important US macro releases – the Advance Q3 GDP and the Personal Consumption Expenditures (PCE) Price Index on Thursday – will be looked upon for more cues about the Fed's future policy path. The outlook, in turn, will play a key role in determining the next leg of a directional move for the DXY.

Heading into the key central bank event and data risks, Fed officials recently signaled that there is no urgency to raise interest rates. That said, traders are still pricing in around an 80% chance that the US central bank will raise borrowing costs again in December.  Moreover, inflation fears stemming from elevated energy prices underpin prospects for further Fed tightening. Adding to this, US bond yields rebound slightly after the recent decline to a three-week low, which, along with persistent geopolitical uncertainties, acts as a tailwind for the safe-haven Greenback. This, in turn, suggests that the path of least resistance for the DXY is to the upside.

DXY 4-hour chart

Technical Analysis

The DXY maintains a constructive bullish bias above the 200-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, a move beyond the 23.6% Fibonacci retracement at 101.92 reinforces a short-term upward tone, although the broader advance remains capped by the cycle anchor level near 102.95, where initial resistance is located.

On the downside, slide below the reclaimed 23.6% Fibo. retracement at 101.92 could find support near a dense structural floor formed by the 38.2% retracement at 101.28 and the 200-period SMA at 101.26. Deeper pullbacks would expose the 50.0% retracement at 100.77 and the 61.8% level at 100.26, while the 78.6% retracement at 99.52 and the 98.59 area represent more distant bearish objectives if the current bullish structure fails.

(The technical analysis of this story was written with the help of an AI tool. Know more.)