US Dollar Index Pulls Back from 18-Month Highs Amid Bullish Momentum

The US Dollar Index (DXY) is showing signs of recovery after a recent dip, currently trading around 102.20 following a retreat from nearly 18-month highs. The index has maintained a bullish near-term outlook, supported by its position above both the nine-period and 50-period Exponential Moving Averages (EMAs). The shorter EMA's alignment above the longer one reinforces this upward trend.

The 14-day Relative Strength Index (RSI) at 76.30 indicates overbought conditions, suggesting that while the upside momentum is strong, it may be increasingly stretched. The FXS Fed Sentiment Index near 137.58 further supports a favorable policy backdrop for the dollar, aligning with the constructive technical outlook.

Technical analysis of the daily chart reveals the dollar index is moving within an ascending wedge pattern, signaling a temporary bullish continuation. However, a bearish reversal or correction could occur upon reaching the pattern's apex or breaking its lower support boundary. The index may test a nearly 18-month high of 102.53, reached earlier in the Asian hours, which aligns with the upper boundary of the ascending wedge.

On the downside, initial support lies at the nine-day EMA of 101.49, aligned with the lower boundary of the ascending wedge. A break below this level could trigger a bearish reversal, putting downward pressure on the dollar index to test the 50-day EMA of 100.30. Further declines would expose the four-month low of 98.56, recorded on August 20.