US Dollar Price Forecast | Oversold DXY Struggles Ahead of Key PCE Data

What to Know

• The US Dollar remains pressured by weak labor figures and rising expectations of a near-term Fed rate cut.
• DXY trades inside a descending channel and remains oversold, with RSI near 27 and no reversal signal yet.
• Markets price an 89% probability of a 25bps rate cut, weighing on any USD rebound attempts.
• GBP/USD extends its rally inside a rising channel, but momentum looks stretched.
• EUR/USD maintains a constructive structure, climbing steadily within its ascending channel.
• PCE inflation on Friday is the main catalyst that could redefine Dollar direction heading into December.

The US Dollar continues to show persistent weakness as markets enter a critical data window dominated by labor updates, inflation expectations, and shifting Federal Reserve sentiment. After weeks of selling pressure, the Dollar Index (DXY) sits at its lowest level since late October, weighed down by soft macro readings and aggressively dovish rate expectations. Despite a modest rebound attempt during the European session, the US Dollar remains trapped inside a broader bearish structure as traders brace for the upcoming Personal Consumption Expenditure (PCE) report.

The story dominating FX markets today is straightforward: the US economy appears to be losing momentum, the labor market is softening, and investors now see a rate cut as almost fully priced in. This environment continues to suppress USD recovery attempts while boosting risk-sensitive assets such as equities, gold, GBP, and EUR. With sentiment leaning heavily against the dollar, price action across major FX pairs reflects a market preparing for confirmation that US inflation is slowing more decisively.

Market Sentiment Weakens the USD

The dollar’s inability to sustain even moderate rebounds highlights the severity of the current shift in market psychology. Traders have become increasingly convinced that the Federal Reserve will need to ease policy sooner rather than later, particularly after a series of weakening labor indicators. During the European session, the dollar attempted to stabilize but found limited traction as macro conditions continued to reinforce USD downside pressure.

The latest labor data from Automatic Data Processing showed that private payrolls declined by 32,000 in November — a sharp contrast to the previous month’s gain of 47,000 and well below expectations for an increase of 5,000. This decline signals a cooldown in hiring momentum and raises concerns about slowing economic resilience heading into year-end.

The disappointing employment data adds to a series of softer US indicators, collectively painting a picture of an economy shifting into a more vulnerable phase. Each release that reinforces labor market weakness boosts expectations for an earlier rate cut, adding downward pressure on the dollar across major pairs.

Rate-Cut Expectations Continue to Dominate FX Flows

Financial markets have now priced an 89% probability of a 25-basis-point cut at the upcoming Federal Open Market Committee meeting. This aggressive shift in expectations has supported risk sentiment, driven equity markets higher, and helped safe-haven metals maintain a strong bid. At the same time, it has constrained the US Dollar’s ability to recover, with traders seeing little reason to buy USD ahead of confirmation from inflation data.

What makes this environment particularly challenging for dollar bulls is the combination of weak employment data and strong rate-cut pricing. As long as both forces remain aligned, DXY is unlikely to see meaningful upside. The market is now in a waiting posture, anticipating whether PCE inflation will validate or challenge dovish expectations.

Focus Shifts to US PCE Inflation

The upcoming US PCE Price Index on Friday is the most important release of the week and arguably one of the final major data points before the Fed meeting. Traders will be watching closely for signs that inflation is cooling at a pace that forces the Fed to move sooner.

Before that, Thursday’s releases — Challenger Job Cuts and Initial Jobless Claims — will offer another look at labor softness. However, even if jobless claims show minor improvement, PCE remains the pivotal event capable of shifting USD direction into December.

For now, the bias remains tilted toward further dollar weakness unless data surprises to the upside.

USD Index (DXY) Technical Analysis

DXY trades around 98.81 and continues to decline within a clearly defined descending channel. The break below 99.02 has turned this level into near-term resistance, while consistent lower highs and lower lows highlight persistent bearish pressure. The technical picture remains firmly negative.

Both major exponential moving averages — the 50-EMA at 99.23 and the 200-EMA at 99.51 — sit far above current price, confirming the broader bearish bias. With RSI near 27, the index is oversold but has yet to form any bullish reversal pattern, suggesting that momentum could extend lower before stabilization occurs.

A sustained drop beneath 98.76 exposes the next key structural supports at 98.56 and 98.38. For buyers to regain control, DXY must reclaim 99.02 and close above the 50-EMA, which would signal the first real sign of stability in weeks.

GBP/USD Technical Outlook

GBP/USD continues its impressive climb, trading near 1.3358 after accelerating within a rising channel that has guided the pair since mid-November. The breakout above 1.3327 — an area reinforced by the 50-EMA — has confirmed bullish strength, while price action remains comfortably above the 200-EMA at 1.3220.

Momentum is strong, with wide-bodied bullish candles showing firm conviction from buyers. However, the RSI is above 75, indicating overbought conditions and raising the risk of a short-term corrective pullback.

Even if the pair retraces, the broader structure remains bullish as long as it stays inside the channel. A dip toward the midline or the 1.3327 support zone would be a healthy correction rather than a trend reversal.

EUR/USD Technical Forecast

EUR/USD trades near 1.1676 and maintains a strong upward trajectory inside its ascending channel. The recent bounce from the mid-channel region at 1.1652 reflects consistent demand, with bullish higher lows and sustained support above both moving averages.

The next resistance sits at 1.1688. A clean close above this level could open the door toward the upper channel boundary. RSI at 69 shows strong buying interest but hints that momentum may soon require a breather.

If price cools, support areas at 1.1652 or the channel floor offer potential re-entry zones for buyers. As long as EUR/USD holds inside the ascending channel, the short-term outlook remains constructive.

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