Technical Analysis Overview

The US Dollar Index (DXY) saw a slight increase in the Asian trading session. It recovered from a recent low of around 97.90-97.85, a level not seen since early October. The index climbed to 98.30, but further gains may be limited due to the Federal Reserve’s cautious stance. From a technical viewpoint, the inability to hold above the 200-day Simple Moving Average (SMA) and a drop below the 100-day SMA favor those betting against the dollar. The daily chart shows negative indicators, implying that any rise may face selling pressure, especially with the 100-day SMA acting as resistance near 98.63. At present, the 100-day SMA is below the declining 200-day SMA, indicating a bearish market outlook. The MACD is below both the Signal line and zero, with a shrinking negative histogram suggesting less downward momentum. The RSI is stabilizing around 35, just above the lower neutral range. Risks to the downside remain while the DXY stays below key trend indicators, with resistance at the 200-day SMA of 99.25. The MACD and RSI hint at a weak recovery, with significant upside potential only occurring if the index moves consistently above resistance levels. The US Dollar Index is currently steady around 98.30. However, the recent bounce from 97.90 appears weak. Overall, the sentiment suggests that the most likely movement for the dollar is downward, supported by the technical setup that signals any upward actions may be brief selling chances.

Trading Strategies and Market Context

Traders dealing in derivatives might want to prepare for further dollar weakness in the coming weeks. The Federal Reserve’s dovish comments at the December 2025 meeting have led to expectations for a softer monetary policy into the new year. This sentiment was strengthened by the November 2025 Consumer Price Index (CPI) report, which indicated year-over-year inflation dropped to 2.3%, allowing the Fed more room for potential rate cuts in 2026. In this environment, buying DXY put options with strike prices below the recent 97.90 low could be a smart move to take advantage of a possible downward shift. The recent failure to sustain momentum over the 200-day moving average is a pattern that has occurred before this year. The effects of the tightening cycle from 2022-2023 are starting to show, as evidenced by the November 2025 jobs report, which revealed non-farm payrolls at only 110,000, well below expectations. Another strategy is to treat any bounce toward the 100-day moving average, currently at 98.63, as a chance to enter short positions. Traders could look to sell DXY futures or set up bearish call spreads with a ceiling near the strong 99.25 resistance level. This approach aligns with negative signals on oscillators like the MACD and RSI, which are not in oversold territory yet, allowing room for more downside. Create your live VT Markets account and start trading now.

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