On Wednesday, the U.S. Dollar Index (DXY) continued its upward momentum for the second consecutive day, rebounding from the monthly low reached earlier this week. The index rose to the 99.85 level, marking a new weekly high, though it still lacks the conviction for a sustained rally.

Optimistic macroeconomic data from the U.S., released on Tuesday, helped ease recession concerns and became a crucial factor supporting the DXY. Notably, the U.S. Census Bureau reported a 6.3% decline in durable goods orders for April—a sharp reversal from the revised 7.6% gain (originally 9.2%) in the previous month. Despite the downturn, the reading beat market expectations, which had forecast a 7.9% drop. Additionally, core orders excluding transportation rose by 0.2%.

Another important development was the sharp rebound in the Conference Board's Consumer Confidence Index, which jumped to 98.0 in May from 85.7 in April—marking the largest monthly increase in four years. This improvement reflects growing optimism about the economy and labor market, fueled by a trade truce between the U.S. and China, which has energized dollar bulls.

Despite this short-term optimism, fiscal concerns and dovish expectations for the Federal Reserve may cap further gains in the DXY. Last week, the House of Representatives passed President Trump's tax cut and spending package, which is now awaiting a Senate vote. The proposed legislation is expected to add approximately $4 trillion to the federal budget deficit over the next decade, intensifying fiscal pressures.

In addition, following weaker inflation data, traders have increased their expectations for at least two 25-basis-point Fed rate cuts this year. As a result, it may be wise to wait for stronger follow-through buying before entering aggressive long positions on the U.S. dollar.

Traders should also look for further guidance on the Fed's policy outlook, paying close attention to the FOMC meeting minutes release, the advance Q1 GDP report on Thursday, and the Personal Consumption Expenditures (PCE) Price Index on Friday.

Technical Outlook

From a technical perspective, oscillators on the daily chart remain in negative territory, signaling that bulls have yet to confirm control. On the hourly chart, bulls must first break above the 200-period simple moving average (SMA) before considering more aggressive buying strategies.

Until then, caution is advised for bullish positions.