It is now one week to the Federal Reserve interest rate decision, and the US Dollar Index (DXY), a measure of the value of the USD against a basket of weighted currencies price action shows the outlook is neutral with a bullish bias.

The DXY has been in a recovery mode in recent weeks, and rising since May 4. The king dollar had a strong performance in May. While momentum on the upside has slowed down, the market breadth remains intact and there is no indication of profit booking or reversal emerging from the highs.

Dollar Index Fundamental analysis

This week, dollar investors have become increasingly concerned about America’s economic health going forward following the data released on Monday showing that activity in the US service sector slowed in May. The US weekly jobless claims data and anticipation of the Fed's announcement will set the tone for USD for the rest of the week. Moving ahead, an electrifying week is coming up, featuring another crucial US inflation report and the Fed’s most crucial meeting of 2023. Both will be key pieces of the puzzle for the dollar as traders grapple with whether the Fed will pause or be forced to resume hiking to 6% or higher. During the last meeting, the Fed lifted its benchmark interest rate by another 0.25%, to a range of between 5.00% and 5.25%. It was the tenth consecutive increase.

DXY, short-term and long-term Technical outlook

Technically, the short-term trend is very supportive, and the index has room to climb If the upside momentum continues. On the upper side, considering heavy volatility there are chances that the DXY can easily rise towards the next key resistance of 104.70 then the 105 area. On the downside, the 103.80 area of confluence has recently been held as a firm support, failure to defend the mentioned support levels has the potential to drag the USD further towards the 103.40.

The below chart plots the long-term view of the greenback. On the upper side, a hurdle can be noted near 105 the psychological resistance zone. A break and daily closing above the 105.10 level shall trigger renewed buying interest, validating a rally towards the next resistance zone 105.35 then 105.60 (200-day simple moving average). On the downside, the key support area to focus 103.20. A daily close below that area could be seen as a strong bearish shift and open the floor to an extended slide toward 102.50 and 102.

Conclusion

June FED meeting outcome will be an important focus and will certainly have a significant impact on the dollar and other assets. Heading into the interest rate decision, the Fed will hold its monetary policy meeting on June 13-14, there is wide expectation that the Fed will keep interest rates unchanged. Therefore, in my view, I suspect that the dollar will continue with its bullish trend till next week's FED meeting outcome then we can expect a sharp reversal from the highs.

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