100 threshold: United States Dollar Index faces make-or-break Fed decision

The US Dollar Index (DXY) holds firm near a two-week high on Tuesday as traders prepare for the Federal Reserve’s (Fed) monetary policy decision on Wednesday. At the time of writing, the index trades around 99.66, up 0.17% on the day.

Markets are nearly fully pricing in a 25-basis-point rate hike, with the CME FedWatch Tool placing the probability at 92%. As a result, the Fed’s guidance may matter more for the US Dollar than the decision itself, with attention turning to the updated economic projections and comments from Fed Chairman Kevin Warsh.

USD path hinges on FOMC follow-through and dot plot signals

Strategists at Scotiabank highlight that “swaps are pricing in more than 90bps of Fed tightening between now and next summer,” warning that “any doubts about follow-through action from the FOMC could still derail the USD.” According to TD Securities, with “a 25bp rate hike almost fully priced-in, the USD could see knee-jerk weakness under our base case,” while “a rate hold would be a big dovish surprise and could push the USD back to pre-August CPI release level.”

They add that “the USD rally could have room to extend if the dot plot puts an October rate hike on the table,” noting that in one scenario the “Fed hikes rates 25bp with little change to the statement language” and the “dot plot shows a median of two hikes,” whereas in an alternative outcome the “Fed keeps rates on hold with no changes to the statement,” with “more than three dissents and median dot still shows at least one hike.”

Technical analysis

On the daily chart, the US Dollar Index appears to have formed a double bottom around 98.50 and has reclaimed the 200-day Simple Moving Average (SMA) at 99.13. However, the recovery now faces a dense resistance zone between 99.80 and the psychological 100.00 mark, where the 100-day SMA at 99.80 and the 50-day SMA at 99.95 are closely aligned.

Momentum indicators show that buying pressure is rebuilding, but a breakout has not been confirmed. The Relative Strength Index (RSI) stands near 54, and a positive, rising Moving Average Convergence Divergence (MACD) histogram hints that bullish momentum is attempting to rebuild while price remains confined under nearby moving-average resistance.

A Fed rate hike alone may not be enough to push the index through the 99.80-100.00 resistance zone because the move is already priced in. The Dollar would likely need hawkish economic projections or a signal from Chairman Warsh that additional hikes are coming. A sustained break above 100 would confirm stronger bullish momentum and expose the next resistance levels at 100.50 and 101.50.

Conversely, a surprise hold or cautious guidance could trigger a pullback below the 200-day SMA at 99.13. Such a move would shift attention back toward the double-bottom support around 98.50. A decisive break below this area would invalidate the developing recovery structure and leave the index vulnerable to deeper losses.