US Dollar: PCE Data to Decide Breakout Above Key Resistance This Week

• US dollar remains supported by hawkish Fed expectations and resilient economic data.
• Easing geopolitical tensions reduced safe-haven demand but failed to weaken broader strength.
• Upcoming PCE inflation data could decide whether it breaks above the key 99.50 resistance.

Global markets are starting the new week with a mixed outlook for the {8827|}}. Geopolitical tensions in the Middle East have eased somewhat in recent days, helping move lower and improving overall risk appetite. Under normal market conditions, this would usually reduce demand for the greenback as a safe-haven asset.

However, several factors are still supporting the US dollar. The US economy continues to show stronger resilience compared to other major economies, markets expect the to remain more hawkish and focused on economic data, and institutional investors are still maintaining positive positions on the US dollar. These factors are helping limit downside pressure on the greenback.

Because of this, the recent movement looks less like a clear decline and more like a period of consolidation after the latest rally attempt. While the index tries to hold near the 99 level, investors are closely watching not only geopolitical developments but also upcoming US economic data and its impact on Federal Reserve policy expectations.

This week, markets will mainly focus on growth figures, PCE inflation data, and comments from Fed officials. In particular, if core PCE inflation shows renewed upward pressure, the US dollar could gain strength and push above the 99.50 level. On the other hand, softer inflation data could trigger a pullback in the US dollar after its recent rally.

Geopolitical Risks Have Eased, but the US Dollar Story Isn’t Over

The US dollar index has recently been supported by safe-haven demand linked to tensions in the Middle East. Concerns around energy supply, the Strait of Hormuz, and rising oil prices pushed inflation expectations higher and increased demand for the currency in global markets.

However, recent diplomatic efforts and falling oil prices have weakened some of that support in the short term. The sharp pullback in WTI and suggests that markets no longer see the worst-case geopolitical scenario as the main risk right now.

Even so, lower geopolitical tensions do not automatically mean the US dollar will enter a lasting decline. Safe-haven demand is only one factor supporting the US dollar at the moment.

Other major drivers still favor the greenback, including the resilience of the US economy, weak economic activity in Europe, interest rate differences with Japan, and ongoing global carry trade activity. In simple terms, the currency still has strong support from broader economic and financial conditions even if geopolitical tensions ease.

Because of this, recent declines in the US dollar are currently being viewed more as a reduction in geopolitical risk premium rather than a major trend reversal. For the US dollar to weaken more meaningfully, markets would likely need to see noticeably weaker US economic data and a clear shift toward softer Federal Reserve expectations.

Pricing for a New Era at the Fed

The main factor supporting the US dollar over the medium term is changing expectations around the Federal Reserve. For a long time, markets expected the Fed to move toward a slow and gradual rate-cut cycle. However, investors are now increasingly pricing in a more data-driven approach with less forward guidance and greater focus on real interest rates.

This creates two important effects for the currency market. First, expectations for interest rate cuts have become more fragile. Second, every strong US economic report now has the potential to push the US dollar higher more quickly.

Although US interest rates still look relatively high, inflation expectations mean the Fed may remain cautious about easing policy too early. Policymakers may prefer to keep rates elevated longer to maintain credibility, especially if inflation data remains strong.

In particular, upcoming labor market and inflation data will be closely watched. If core inflation continues showing strength, markets may further reduce expectations for rate cuts. That could help the US dollar strengthen further against currencies such as the euro, yen, and pound.

At the same time, this also creates a risk for the currency. If PCE inflation comes in weaker than expected, consumer confidence declines, and economic growth starts losing momentum, markets may decide that the Fed has little room to stay hawkish.

In that scenario, attempts by the US dollar to break above 99.50 could fail, potentially leading to a pullback toward the 98.50 to 98.70 range.

Divergence Between Europe and Japan Supports the US Dollar

To understand the strength of the US dollar, it is important to look beyond the US economy. Weakness in other major currencies is also playing a major role in supporting the index.

In the Eurozone, economic growth remains weak while inflation is still high enough to limit the European Central Bank’s flexibility. This creates a difficult situation for the ECB. The economy would benefit from lower interest rates, but inflation pressures and rising consumer inflation expectations make aggressive policy easing more difficult. Because of this, continued weakness in remains supportive for the US dollar.

In Japan, the situation is different but still favors the US dollar. Although the Bank of Japan has started signaling a shift toward tighter policy, the interest rate gap between the US and Japan remains very large. This continues to put pressure on the yen. Warnings and possible interventions from Japanese authorities may temporarily slow gains in , but a more lasting recovery for the yen would likely require a much smaller interest rate gap.

The has also struggled against the US dollar despite some improvement in the UK economy. While some members of the Bank of England support maintaining a tighter policy stance, global demand for the US dollar remains stronger overall because of its reserve currency status.

This broader global backdrop helps explain why the US dollar often recovers quickly after periods of weakness.

Positioning: Major Players Haven’t Given Up on US Dollar Yet

Positioning in futures markets suggests that medium-term confidence in the dollar remains strong despite recent short-term weakness. Institutional investors have increased their net long positions, showing that many funds still view recent pullbacks as temporary rather than the start of a larger downtrend.

At the same time, rising short positions against low-yielding currencies such as the yen and the Swiss franc show that carry trade strategies remain active. Investors are still favoring the higher yields available in US assets compared with lower-yielding markets.

This positioning continues to support the YS dollar because major institutional funds are still betting on the US interest rate advantage. However, crowded long positions can also increase the risk of short-term volatility if economic data disappoints.

For example, softer-than-expected PCE inflation data or more balanced comments from Federal Reserve officials could trigger profit-taking in long US dollar positions. Because of this, the 99.50 level is becoming an important decision point not only technically but also from a market positioning perspective.

Technical Outlook for US Dollar

On the daily chart, the US dollar index has moved back above the 99 level after rebounding from support near 98.50. The index recently climbed to the 99.35 resistance area, though momentum now appears to be slowing. The fact that the price remains above the 8-day EMA shows the short-term recovery is still active, while trading near the 21-day and 89-day EMAs suggests the move has not yet developed into a strong trend.

The first important resistance level is 99.35. If the index closes above this level on a daily basis, the next target could become 99.72, which matches the Fib 0.236 level. A move above 99.72 would then bring the major resistance zone around 100.21 into focus. This area has acted as a strong selling zone during previous rallies and is viewed as an important level where bullish momentum for the US dollar could strengthen further.

On the downside, the 99 level currently acts as the short-term balance point. As long as the index remains above this area, another attempt toward the 99.35 to 99.72 range remains possible. However, if the US dollar index falls below 99, and especially below the 98.80 to 98.70 EMA region, it would suggest the recent rebound is weakening.

In that case, support around 98.50 becomes important again. A break below 98.50 could trigger a larger correction toward the 96.55 to 97.00 range.

The Stochastic RSI indicator also deserves attention. It remains in overbought territory but has recently started turning lower. This suggests that short-term profit-taking could increase if the index fails to break above 99.35. At the same time, the indicator staying at elevated levels also shows that buyers have not fully left the market.

Overall, the technical picture currently reflects uncertainty rather than a clear trend reversal, with the market balancing between continued recovery attempts and signs of slowing momentum.

Scenarios: PCE Will Determine the US Dollar’s Direction

For the US dollar index, the main bullish scenario depends on stronger-than-expected US PCE inflation data and continued hawkish comments from Federal Reserve officials. If this happens, markets could further delay expectations for interest rate cuts. In that case, the index may hold above 99.35 and move toward 99.72, with the next major target near 100.21. A sustained move above 100.21 could strengthen bullish momentum further and potentially open the way toward the Fib 0.382 level around 101.67.

In a more balanced scenario, if PCE inflation comes in close to expectations and geopolitical tensions continue easing, the US dollar index may continue trading within the 98.50 to 99.72 range. In this environment, markets would likely focus more on comments from Fed officials and movements among major currencies rather than establishing a clear trend. This would support a sideways but volatile short-term outlook.

The bearish scenario would require weaker-than-expected PCE data, signs of slowing economic growth, and lower oil prices, reducing inflation expectations. Under those conditions, the currency could lose both its safe-haven appeal and its interest rate advantage at the same time.

From a technical perspective, a move below 99 would act as the first warning sign, while a break below 98.50 would point to a clearer weakening trend. In that case, the index could decline toward support levels near 97.60 and then 96.55.

Overall, the US dollar index still has strong support from broader macroeconomic conditions. However, for bullish momentum to strengthen again, the resistance area around 99.50 likely needs to be broken decisively. With geopolitical tensions easing, oil prices moving lower, and risk appetite improving, the currency may no longer rise purely because of safe-haven demand. The next major move will likely depend on how upcoming US economic data shapes expectations for Federal Reserve policy.

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