The US Dollar Index (DXY) stayed above 97.00 on Wednesday and traded near 97.29, up about 0.20%. Trading was cautious ahead of US Industrial Production data and the FOMC meeting minutes.
US Durable Goods Orders fell 1.4% in December. This was better than the 2% drop expected, after a 5.4% rise in November. Orders excluding transportation rose 0.9%, up from 0.5% previously.
Fed Easing Expectations And Market Pricing
Markets are pricing in almost 60 basis points of Fed rate cuts in 2026. The first cut is expected in June, according to the CME FedWatch Tool. Recent labour data lowered the odds of cuts in the near term. But softer inflation has kept the case for easing later in the year.
Major central banks have been cutting their USD holdings. They are concerned about US trade policy and the Federal Reserve’s independence. This has hurt confidence in US policy and raised doubts about the Dollar’s long-term reserve role.
DXY bounced from four-year lows near 95.56 in late January, but it is still below key moving averages. The 21-day SMA is below the 100-day SMA. The 21-day SMA is around 97.19, and 98.00 is now a key resistance level.
Support sits near 96.50. If DXY breaks below it, the index may retest the 95.56 low. MACD has turned slightly positive, while RSI is 45.84.
With DXY holding near 97.29, it is best to be careful about short-term strength. The market is already pricing about 60 basis points of Federal Reserve rate cuts this year, likely starting in June. That outlook puts bearish pressure on the dollar. As a result, rallies may offer a chance to position for a move lower.
Technical Levels And Trade Positioning
Recent data from late 2025 and early 2026 has been mixed. This has helped create the current, temporary stability. For example, the January nonfarm payrolls report surprised to the upside, adding 225,000 jobs. That reduced the most aggressive rate-cut bets. However, last week’s Consumer Price Index showed core inflation easing to 2.1%, which gives the Fed room to cut rates later this year.
Technically, the dollar is having trouble clearing resistance near the 21-day moving average at around 97.19. This level may limit upside. The bigger psychological level at 98.00 still looks far away. For derivatives traders, selling call spreads above 98.00 may be a way to collect premium while expecting the rally to fade.
The downside still looks more likely in the weeks ahead. A break below 96.50 would suggest the bearish trend is returning. That would increase the chance of a retest of the four-year lows near 95.56 seen in January. Traders could consider DXY puts that expire after the June FOMC meeting to position for that weakness.
Longer-term factors also still weigh on the dollar, which supports a bearish view. Protectionist trade policies over the last decade pushed many global central banks to diversify away from the dollar. Recent IMF data for Q4 2025 supports this trend, showing the dollar’s share of global reserves fell to 58.5%.
This suggests the current calm is more of a pause than a true turnaround. The upcoming FOMC minutes may not create a clear direction, but they will likely repeat the Fed’s data-dependent approach. That means weaker economic data could quickly increase rate-cut expectations and put more pressure on the dollar.
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