Chart Overview
The U.S. Dollar Index (DXY) has staged a tremendous rally following Donald Trump’s presidential victory, fueled by expectations of pro-growth policies and a potential hawkish stance from the Federal Reserve. After a sharp climb of 6.89%, the dollar has reached a critical resistance zone near 106.13-108, leaving traders to wonder: is the dollar too hot to handle, or does it have room to hit all-time highs (ATH) at 114.789 in 2025? Let’s analyze the key technical and fundamental dynamics driving the dollar.
Key Technical Patterns & Levels
Breakout from Descending Wedge
The dollar broke out of a descending wedge pattern. The breakout led to the price reaching the 106-108 resistance zone. This resistance band capped the DXY’s rallies throughout 2023 and early 2024. A decisive break above this level would signal renewed bullish momentum, potentially paving the way for a test of the ATH at 114.789. However, failure to break this resistance could lead to a short-term cooling-off phase.
Strong Base at 102-104
The ascending support from the wedge from mid-2023 offers support for the Dollar. Even if prices pull back, this trendline, combined with the 102-104 zone, should act as strong support, keeping the longer-term bullish trend intact.
RSI – Overbought Territory
The weekly Relative Strength Index (RSI) is currently at 66.13, nearing overbought levels. A slight pullback or consolidation may provide healthier conditions for another push higher.
Bullish Case 📈
- Trump Victory Driving Sentiment: The dollar’s rally reflects optimism over Trump’s presidency, with markets anticipating fiscal expansion, deregulation, and possibly higher interest rates to curb inflation.
- Room to Run to ATH: A breakout above the 106-108 resistance could open the door for a run toward the all-time high of 114.789 in 2025, driven by continued economic strength and hawkish central bank policies.
- Technical Momentum: The breakout from the wedge and the solid support trendline underpin a strong upward trajectory for the dollar.
Bearish Considerations ⚠️
- Overbought Conditions: The RSI indicates the dollar may be overstretched in the short term, increasing the likelihood of a pullback toward 102-104 before attempting another rally.
- Resistance Challenges: The 106-108 zone is a significant barrier, and failure to break above it decisively could result in a prolonged consolidation phase.
Outlook & Summary
- Short-term (1-2 weeks): The dollar may consolidate below the 108 resistance level as overbought conditions ease. A pullback toward 104-105 could offer a healthier base for another leg up.
- Medium-term (1-3 months): A breakout above 108 would set up a bullish scenario, targeting the ATH at 114.789 in 2025.
- Long-term (3+ months): If the dollar remains above the 102-104 support zone, the longer-term trend favors higher highs, with the ATH becoming a realistic target.
