USD Index – Limited Correction to Precede Fresh Push Higher

The dollar drifted lower early Monday, easing from the new one-year high set Friday. The pullback stayed shallow. Friday's long-tailed daily candle suggested well-placed bids just below the peak.

Month-end and quarter-end flows drove much of the selling, traders said. The dollar has rallied for two consecutive months and is on track for its biggest monthly gain in eleven months. Some participants locked in profits ahead of the calendar flip.

Still, the broader uptrend remained intact. The focus shifted to Friday's US May labor market report. The payrolls print could add detail to the picture of an economy that continues to run hot. Inflation has stayed sticky, and the report will feed into expectations for a September rate hike. Several Fed officials have signaled they see no urgency to cut.

Technically, initial support sat at 100.70 to 100.60, the 10-day moving average and the 23.6% Fibonacci retracement of the rally from 97.44 to 101.55. A deeper drop toward the 100.00 handle would test the 38.2% retracement, a level traders said should hold if the broader bullish structure stays valid. A hold there would set up another run at the 101.55 high, with the next target at 102.00 and then 102.40.

On the upside, resistance stood at 101.55, the new 2026 peak. A break above that opened the path to 102.00 and 102.40, traders said. The 102.67 level marked the next major ceiling from prior cycles.

The May nonfarm payrolls report is due Friday. A strong print would reinforce the case for a September hike and likely push the dollar back toward recent highs. A miss would test the depth of the correction. For now, the limited nature of the pullback suggested dip-buyers were waiting. The setup leans bullish until support breaks.

For more on the broader forex market analysis, see the full breakdown of positioning and central bank policy.