Introduction
The U.S. Dollar Index (DXY) continues its impressive rally as we conclude the year, fueled by pro-growth and pro-dollar policies under the Trump administration. The index is trading at 108.068, breaking out of a long-term consolidation pattern and aiming toward its all-time high (ATH) at 114.789. The bullish momentum has intensified, with resistance levels now acting as support, setting the stage for further upside into 2025. Let’s dive into the technicals and fundamentals driving this move.
Technical analysis
Breakout Above Long-Term Resistance
- The DXY decisively broke through the red resistance zone at 108, which had capped gains for much of 2023 and early 2024.
- This breakout confirms a reversal of the multi-month consolidation pattern, with a higher probability of continued upside.
50-Day and 200-Day Moving Averages Supporting the Trend
- The index is trading well above the 50-week SMA at 104.38 and the 200-week SMA at 101.56, reinforcing a strong bullish trend.
- These moving averages now act as dynamic support, offering protection against downside retracements.
All-Time High (ATH) in Sight
- The next significant target for the bulls is the 114.789 level, the index’s all-time high from September 2022.
Momentum Confirmed
- Bullish momentum remains intact, supported by a series of higher highs and higher lows. However, traders should monitor for overbought conditions in the coming weeks.
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Bullish Case: Trump Presidency Fuels Dollar Demand
- Pro-Growth Policies: Trump’s administration has emphasized fiscal stimulus, tax cuts, and de-regulation, all of which boost confidence in the U.S. economy and the dollar. (BULLISH)
- Interest Rate Expectations: Markets anticipate a continuation of hawkish monetary policy, further strengthening the dollar’s appeal relative to other currencies. (BULLISH)
- Breakout Confirmation: The clean breakout above 108 opens the door for a swift move toward 114.789, with the uptrend firmly in place. (BULLISH)
Bearish Case: Potential Overbought Conditions
- Pullback to Key Support: A pullback toward the 50-week SMA (104.38) or the broken resistance at 108 could occur before the next leg higher.
Trade Ideas
Long Setup – Continuation
- Entry: Buy on a retest of the 108 level, now acting as support.
- Target 1: 110.00 (psychological level).
- Target 2: 114.789 (ATH).
- Stop Loss: Below 106.50 (previous range high).
Short Setup – Pullback Opportunity
- Entry: Sell near 114.00, targeting a pullback to dynamic support at 108.00.
- Target 1: 110.00 (intermediate support).
- Target 2: 108.00 (breakout level).
- Stop Loss: Above 115.00.
Outlook & Summary
- Short-term (1-2 weeks): Expect consolidation or a minor pullback to the 108-110 zone as bulls regroup for another push higher.
- Medium-term (1-3 months): A sustained rally toward the ATH at 114.789 appears likely, especially if the Trump administration continues to roll out dollar-supportive policies.
- Long-term (3+ months): The breakout above 108 suggests that the dollar’s bullish cycle is intact, with the potential for new highs beyond 114.789 in 2025.
