DXY Edges Higher, but PCE Looms as the Ultimate Dollar Decider

Warren Takunda

Traders' Opinions

Summary:

The US Dollar Index (DXY) held steady above 97.20 on Tuesday as markets braced for key catalysts.

BUY USDX

EXP

TRADING

97.150

Entry Price

100.000

95.900

97.260 +0.300 +0.31%

0.0

Pips

Flat

95.900

Exit Price

97.150

Entry Price

100.000

The US dollar is demonstrating renewed resilience, climbing for a second consecutive session as traders adopt a cautious posture ahead of a trifecta of high-impact events later this week. The Dollar Index (DXY), a critical barometer of the currency’s strength against a basket of six major peers, was last seen hovering near the 97.20 mark during European trading hours on Tuesday.

This measured advance suggests a market in a holding pattern, unwilling to place aggressive bets until the release of the Federal Open Market Committee (FOMC) Meeting Minutes on Wednesday and, more critically, the January Personal Consumption Expenditures (PCE) price index data on Friday.

The underlying narrative for the greenback remains a complex tug-of-war between stubborn inflation and a surprisingly robust labor market. While the DXY is finding short-term support, the broader trajectory is far from clear.

January’s hotter-than-expected Consumer Price Index (CPI) report initially sent shockwaves through rate-cut expectations, but the market’s interpretation has since evolved. While the headline numbers reinforced the narrative that the final mile of the inflation fight is proving bumpy, they have not fully extinguished the conviction that the Fed will pivot to easing later this year. According to the CME Group’s FedWatch Tool, probabilities are finely balanced: markets are pricing in a 52.7% chance of a 25-basis-point cut in June, with July emerging as a nearly equally viable option at 42.7%.

This creates a precarious environment for the dollar. On one hand, a resilient economy and sticky inflation should theoretically support the currency. However, the market’s laser focus is on when, not if, the easing cycle begins. Any data that solidifies the timeline for a June cut could cap the dollar’s upside potential significantly.

Compounding the mixed signals is the dichotomy between the labor market and inflation. January’s Nonfarm Payrolls report was a blockbuster, marking the largest employment increase in over a year, while the Unemployment Rate defied expectations with a decline. This points to a labor market that is stabilizing rather than cooling, a factor that typically argues for maintaining higher rates for longer.

Yet, the Fed’s preferred inflation gauge, the PCE Price Index, continues to hover uncomfortably close to the 3% threshold—well above the central bank’s 2% target. Friday’s core PCE reading will be the definitive piece of the puzzle, telling investors whether the disinflationary trend has truly stalled since mid-2025 or if the CPI was merely a seasonal anomaly.

Chicago Fed President Austan Goolsbee recently encapsulated this dilemma, characterizing the latest CPI data as a mixed bag. While acknowledging the robust jobs data suggests only "modest cooling" in the labor market, he notably reiterated that interest rates still have "scope to move lower." This dual messaging—acknowledging strength while keeping the door open for cuts—highlights the delicate balancing act the Fed is attempting, and it is leaving currency traders in a state of heightened sensitivity to every data point.

For the moment, the dollar is finding a floor on caution and position-squaring. But with the PCE data looming, this stability may prove fleeting.

Technical Analysis

From a technical perspective, the U.S. Dollar Index (DXY) on the daily timeframe is attempting to stabilize following a sharp impulsive decline that unfolded in late January. Price action recently printed a capitulation low near the 96.00 handle before staging a corrective rebound toward 97.15, where it is currently consolidating.

The broader structure reflects a range-bound market that has persisted for several months, with clearly defined horizontal supply and demand zones. The upper boundary of the range is situated around 100.00–100.50, where multiple prior rejections occurred in November and December, reinforcing this region as a major resistance ceiling. On the downside, strong demand has historically emerged around 96.50–97.00, a zone that previously acted as support in mid-2025 and is now being retested following the recent breakdown and rebound.

The recent selloff broke decisively below the 98.50–99.00 mid-range support zone, which had served as a structural pivot. That breakdown shifted short-term momentum bearish and triggered the move toward 96.00. However, the swift rejection from sub-96 levels and subsequent higher lows suggest that sellers are losing immediate control, opening the door for a corrective recovery.

In the near term, price is attempting to build a base above the 96.50–97.00 demand zone. A sustained hold above this region would confirm short-term accumulation and could fuel a move toward the 98.50 resistance band. That level represents the first significant upside barrier and aligns with prior consolidation structure. A decisive break and daily close above 98.50 would shift momentum more convincingly in favor of buyers, exposing the 100.00–100.50 major resistance zone. A move into that region would represent a full retracement of the January decline.

Conversely, failure to maintain footing above 96.50 would invalidate the developing recovery structure. A daily close below 96.00 would signal renewed bearish continuation and likely open the path toward 95.00, with potential extension toward the 94.00–94.50 region if downside momentum accelerates. Such a breakdown would confirm a broader structural deterioration rather than a simple corrective pullback.

Overall, the market appears to be transitioning from impulsive decline into consolidation within a well-defined lower demand zone. The next directional move will likely be determined by whether price can reclaim the 98.50 pivot resistance or breaks decisively below 96.00 support.

TRADE RECOMMENDATION

BUY DXY

ENTRY PRICE: 97.15

STOP LOSS: 95.90

TAKE PROFIT: 100.00

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DXY Edges Higher, but PCE Looms as the Ultimate Dollar Decider

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