DXY holds above 101 as Fed, ECB meetings test dollar uptrend

The dollar's uptrend faces its biggest test this week as the Fed and ECB deliver rate decisions that could break EUR/USD and GBP/USD from their ranges.

The dollar index holds above 101 as the Federal Reserve and European Central Bank prepare to deliver rate decisions this week, with traders pricing divergent policy paths that could determine whether the euro and sterling break from recent ranges. The US Dollar Index traded near 101.14 on Tuesday, holding above its 50-day exponential moving average of 100.35 after bouncing from the 100.50 demand zone.

"Markets are pricing a status-quo outcome from both central banks, but the risk lies in the guidance," said Arslan Ahmed, a financial analyst at FXstreet. "The dollar's uptrend remains intact as long as the 100.50 support holds, but any dovish shift from the Fed could trigger a sharp reversal."

Data released last week supported the case for a steady Fed. June retail sales rose 0.2 percent month over month, core retail sales climbed 0.5 percent, and initial jobless claims fell to 208,000, the lowest in two months. The Fed convenes July 29-30, with markets pricing a hold. The ECB meets July 23 and is expected to leave the deposit rate at 2.25 percent after delivering a hike in June.

The outcome carries significant implications for currency markets. A hawkish Fed hold that maintains the current rate path would likely reinforce dollar strength, pushing EUR/USD below the 1.1400 support and GBP/USD toward 1.3330. Conversely, any signal that rate cuts are approaching could unwind the dollar's recent gains, with EUR/USD targeting the 1.1450 breakout level and sterling reclaiming the 1.3422 resistance.

EUR/USD Tests Triangle Support at 1.1400

The euro traded near 1.1400 against the dollar on Tuesday, holding at the lower boundary of a symmetrical triangle pattern on the 4-hour chart. The pair remains below both the 50-EMA at 1.1425 and the 100-EMA at 1.1433, with the relative strength index at 42, indicating downside momentum is slowing but not yet reversing.

Immediate resistance sits at 1.1446, followed by 1.1481 and the triangle top at 1.1528. On the downside, a break below 1.1399 would expose 1.1362 and then 1.1325. A move above 1.1450 would confirm the bullish triangle pattern and open the path toward 1.1480 and 1.1530, according to technical analysis from FXstreet.

The ECB's July decision comes as lending surveys show further tightening in credit standards for firms and the first signs of a rebound in credit demand in the second quarter. Policymakers have signaled openness to further tightening later this year should inflationary pressures re-emerge.

Sterling Struggles Below Key Moving Averages

GBP/USD traded near 1.3383 on Tuesday, below both the 50-EMA at 1.3418 and the 100-EMA at 1.3392 on the 4-hour chart, indicating the short-term downtrend remains intact. The RSI at 38 approaches oversold territory, suggesting selling pressure may be nearing exhaustion.

Resistance is found at 1.3422, then 1.3482 and 1.3518. Support levels sit at 1.3329, 1.3272 and 1.3218. The pair would need to reclaim 1.3422 to shift momentum in favor of buyers, with the next target at 1.3480.

The Bank of England could hold rates at 3.75 percent later this month as markets digest the impact of the new UK government's tax and spending plans. Latest data showed public borrowing in June totaled 16 billion pounds, with annual wage growth holding firm at 3.4 percent, keeping the BoE balanced between inflation risks and economic growth headwinds.

The last time the dollar index traded at these levels ahead of a dual central bank week was in March, when the Fed's hawkish hold pushed DXY above 102 while EUR/USD fell through 1.14 and GBP/USD dropped below 1.33 within two weeks.

This article is for informational purposes only and does not constitute investment advice.