USD exchange rate forecast this week: Continued recovery but many challenges remain

Dollar Index (DXY) last week

The US dollar (USD) continued to record its fourth consecutive weekly gain last week, marking a steady recovery after hitting multi-year lows in mid-April. On April 21, the dollar index (DXY) fell near the 98.00 mark, but then surpassed the important 101 level earlier this week.

Positive signals from a series of recently reached trade agreements, especially between the US and China and the US and the UK. The US's 90-day suspension of heavy tariffs on Chinese goods, along with Beijing's soft response, have helped calm market sentiment.

Meanwhile, the trade deal with the UK, though still symbolic, still contributes to improving the US's trade position in the international arena. At the same time, the sharp increase in US government bond yields across all maturities has also become an important support, reinforcing the attractiveness of the USD in a high-interest environment.

However, the outlook for the USD exchange rate this week remains unclear as macroeconomic and policy factors continue to fluctuate.

Inflation in the US in April was still higher than the Fed's 2% target, raising concerns about the Fed's ability to maintain high interest rates for a longer period than expected. In this context, investors have begun to push back expectations of interest rate cuts to the third quarter, with September considered the most likely date.

However, the market still needs to closely monitor new signals from the US Federal Reserve. This week, speeches from many Fed officials will become the focus, as investors expect more specific suggestions about the policy direction in the coming time.

In addition, preliminary data on US manufacturing and services activities will also help shape market expectations on the health of the economy and the performance of the USD.

Technical forecast of USD exchange rate

Technically, the DXY is showing a cautious recovery but is still limited by important resistance levels. Despite breaking above 101, the index is still below long-term moving averages such as the 200-day SMA (104.25) and 200-week SMA (102.79), suggesting that long-term bearish pressure has not been completely eliminated.

If DXY clears 101.95, its recent peak in May, the index could continue to the 102.10 zone (55-day SMA) and aim for a higher target at 104.25, the peak on March 26.

On the other hand, if the DXY weakens again, the 2025 support level at 97.92 (established on April 21) would be the nearest target. If the decline continues, the March 2022 low at 97.68 could become the next support zone.

Technical indicators are also not giving consistent signals at the moment. The RSI has crossed the neutral threshold of 52, signaling an uptrend is forming. Meanwhile, the ADX at 32 shows that the recovery momentum is increasing but still lacks clear certainty.