Price Action & Momentum
- Breakdown Structure: Price has broken below major support at 99.90 and is now testing the S1 support level of 97.93, which is its last line of defence.
- RSI (14): 38.83 – momentum remains bearish and oversold conditions are emerging.
- A minor bullish divergence may be forming if price prints a higher low above 97.50, but confirmation is not present yet.
Technically, DXY is in a confirmed bear trend. A sustained close below 97.93 would expose the 96.75 level next (S2). Reclaiming 100 would be necessary for bulls to regain control.
Macroeconomic Pressures on the U.S. Dollar
Rate Cut Expectations Soften Yield Appeal
- The Fed is increasingly dovish as the U.S. economic data is weakened (job growth softening, ISM services contracting).
- Market is now pricing in two potential rate cuts in 2025, down from previously forecasted hikes.
- This narrows the interest rate differential with other central banks like the ECB and BoE, diminishing foreign demand for USD-denominated assets.
Twin Deficits – Fiscal and Current Account
- The U.S. budget deficit continues to balloon due to aggressive fiscal spending.
- Meanwhile, the trade balance remains structurally negative.
- These twin deficits are typically bearish for the dollar as they require foreign capital inflows to sustain, which are currently slowing.
Political Uncertainty Around Trump’s Return
- Donald Trump, now the GOP frontrunner, is creating volatility across U.S. policy expectations.
- Markets are unsure of his return to “America First” trade protectionism, deregulation pushes, and anti-Fed rhetoric.
- This unpredictability is pressuring U.S. assets — including the dollar — as global investors seek stability and neutrality elsewhere.
The U.S. economy is currently going through late-cycle dynamics — growth is cooling, inflation remains sticky in services, and monetary policy has pivoted toward easing.
The political climate adds further uncertainty. Trump’s campaign rhetoric in 2025 has revived debate over:
- Potential tariffs and trade shocks
- Structural challenges to central bank independence
- Polarizing fiscal plans (e.g., cuts and stimulus)
While markets favor Trump’s pro-growth tax policies, they fear geopolitical instability, retaliatory trade measures, and long-term damage to institutional credibility.
All of this translates to a weaker U.S. dollar, especially in contrast to a relatively more stable eurozone and a resilient commodity bloc (Canada, Australia).
Final Take & Forward Outlook
| Horizon | Direction | Comment |
|---|---|---|
| Short-Term | Bearish | Price below 99.90 and declining momentum |
| Medium-Term | Bearish Bias | Fed dovish stance + policy uncertainty |
| Long-Term | Neutral-to-Bearish | Twin deficits + political fragility could persist through 2025 |
Key Levels to Watch
- Immediate support: 97.93 (watch for bounce or breakdown)
- Downside targets: 96.75 → 95.50
- Bullish invalidation: Reclaim of 100.03 → potential mean reversion toward 103+
