US Dollar Under Pressure
Short-Term And Long-Term Outlook
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One of the most painful trades for investors this year (so far) has been going long the US dollar index ($DXY).
In 2025, DXY is down by more than 10% after rejecting in the red zone (0.618 to 0.786 Fib retracement region) we had highlighted earlier this year.
Now, DXY is below the 99.75 to 100.83 support region, albeit with a bullish RSI divergence.
A bounce here is possible, but we’re of the opinion that it’s likely to only be a dead cat bounce before the dollar weakens further (data provided later in this article).
Looking at the weekly chart, the next key support lies around 94.5.
This is a possible target for DXY in 2025.
A big part of this dollar weakness has been driven by Trump’s policies that has caused investors to rotate out of USD.
Naturally, why would you want to hold a currency if you’re not sure about the big policy changes that are going to take place in a region, especially one that has record levels of debt with no signs of stopping.
We can see this through the chart below showing the US dollar and 10-year Treasury yield.
Typically, these 2 follow each other very closely.
But since Trump’s tariff announcement, we’ve seen a big divergence where yields have risen, but the US dollar index has weakened significantly.
So even with the current yield, investors are not comfortable buying dollars and allocating it to long-term government bonds… and why should they when they don’t know what the policy will be 1 month from now!
For now, the the dollar weakness has been a short-term theme, but there’s a real possibility for it to turn into a long-term theme (structural dollar weakness) if Trump’s policies put downward pressure on the dollar throughout the next 4 years.
If we look at the chart below showing the length a reserve currency status lasts, it’s usually around a century.
Of course there’s some variance in there, but around the 100 year mark is when it has made sense to start being vigilant.
For the US dollar, that time has come unfortunately.
Of course, this isn’t something that happens overnight and we are NOT calling for a dollar collapse right now.
But we are calling for caution towards the US dollar, especially if the dollar weakness persists and turns into a structural weakness.
And right now, there is evidence that we’re setting the stage for a structural dollar weakness.
I’ll let the chart below speak for itself, but IF we do indeed follow that path, then the next decade would be a bad turning point for the US dollar.
In the next section, we’ll look at the short-term picture for the US dollar.
We’ll cover this from a statistical standpoint to put the odds in our favor.
Then we will also look at what that means for US equities, different sectors within the US market, commodities, and other markets (like emerging markets).
This should help us position correctly and maximize profits through the next move the US dollar is likely to make.
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