Anticipation of sustained higher Federal Reserve interest rates to support the dollar in the long term

The dollar index strengthened in early Tuesday trading, nearing the recovery highs from the December 6 low of 105.37.

Despite Friday and Monday forming Doji candles signaling indecision, the pattern likely reflects a brief consolidation before the recovery resumes.

Fresh bullish momentum is testing the 50% Fibonacci retracement level at 106.71 (retracement of the 108.04 to 105.37 pullback). A decisive break above this level would signal a continuation of the recovery, targeting the 61.8% and 76.4% Fibonacci levels at 107.02 and 107.41, respectively, ahead of the key resistance at 108.04 — the 2024 high from November 22 and the highest since November 2022.

The near-term bullish bias is expected to remain intact as long as the index holds above the 10-day moving average (106.32), with deeper pullbacks likely finding support around the 106.00 level.

The technical outlook on the daily chart remains bullish, aligning with the broader fundamental view. Markets are positioning for U.S. interest rates to stay elevated for an extended period.

While the Federal Reserve is expected to reduce rates by 25 basis points on Wednesday, it is likely to maintain a cautious stance in its forward guidance. Elevated inflation, coupled with anticipated economic stimulus under the incoming Trump administration, and the overall resilience of the U.S. economy, suggest a limited path for aggressive rate cuts.

Res: 106.86; 107.02; 107.41; 108.00
Sup: 106.32; 106.00; 105.75; 105.37