US Dollar Index Price Analysis: DXY seems poised to build on its strength above 200-day SMA

• The USD climbs to its highest level since June 12 during the Asian session on Thursday.
• The Fed's hawkish stance lifts the US bond yields to a multi-year top and lends support.
• The overnight break through the 103.00 confluence was seen as a fresh trigger for bulls.

The US Dollar (USD) builds on the previous day's positive move beyond the 103.20-103.25 hurdle and touches its highest level since June 12 during the Asian session on Thursday. The USD Index (DXY), which tracks the Greenback against a basket of currencies, currently trades just below mid-103.00s and seems poised to prolong the recent strong upward trajectory witnessed over the past month or so.

The minutes of the July 25-26 FOMC policy meeting revealed that policymakers remained divided over the need for more rate hikes, though continued to prioritize the battle against inflation. This, along with the recent stronger US macro data, which pointed to an extremely resilient economy, keeps the door open for one more 25 bps lift-off by Fed later this year. The outlook lifts the yield on the benchmark 10-year US government bond to its highest level since 2008 and continues to underpin the buck.

Moreover, fresh worries about headwinds stemming from rapidly rising borrowing costs and the worsening economic conditions in China turn out to be another factor that benefits the Greenback's status as the global reserve currency. That said, a slightly overbought Relative Strength Index (RSI) on the daily chart is holding back the USD bulls from placing fresh bets and capping any further gains, though the broader technical setup supports prospects for a further near-term appreciating move.

The overnight breakout through a descending trend-line hurdle extending from the March swing high and a close above the very important 200-day Simple Moving Average (SMA) – for the first time since November 30 – was seen as a fresh trigger for bullish traders. This, in turn, suggests that the path of least resistance for the USD remains to the upside. Hence, a subsequent strength towards the 103.75 horizontal resistance, en route to the 104.00 round-figure mark, looks like a distinct possibility.

On the flip side, any meaningful corrective slide is likely to attract fresh buying and remain limited near the 103.00 confluence resistance breakpoint, comprising the aforementioned descending trend-line and the 200-day SMA. The said handle should act as a strong base for the DXY, which if broken might prompt some technical selling. Spot prices might then slide to the 102.70-102.65 support before sliding further towards the next relevant support near the 102.30 area and the 102.00 round figure.

US Dollar Index (DXY) daily chart

Technical levels to watch