The US Dollar Index (DXY) Yearly Support and Potential Sell-Off to 96 Zone: Role of 10-Year Bond Yields and Interest Rates
1. Technical Outlook: DXY Support Breakdown and 96$ Target and Critical Support Levels.
The DXY recently breached the 200-week moving average (200-WMA), a key multi-year support level, signaling a potential trend reversal .
A sustained break below 98.00 could trigger a steeper decline toward 96.00-95$ long-term uptrend ascending trendline acting as 6months support floor connecting 2008, 2011 and 2020, . However, analyst projections also highlight the 96–95 zone as a plausible target if Fed rate cuts and macroeconomic headwinds persist .
Current Context (May 2025):
The DXY is testing 98.4 on weekly charts, with bears eyeing lower supports amid weakening USD sentiment .
A drop to ascending trend line on 6months would align with forecasts tied to Fed policy shifts and global currency strength .
2. 10-Year Bond Yield and Interest Rate Dynamics
Direct Relationship with the Dollar:
The 10-year Treasury yield and USD share a strong correlation: higher yields attract foreign capital, boosting dollar demand, while lower yields weaken the currency .
As of May 2025, the 10-year yield hovers near 4.54%, down from peaks but still elevated compared to global peers .
Impact of Rate Cuts and Policy Divergence:
Fed Rate Expectations: Markets price in five Fed rate cuts by late 2025, which would reduce yield advantages and pressure the dollar .
Policy Divergence: The ECB and BoJ are expected to maintain or ease policies, while the Fed delays cuts, temporarily supporting USD. However, prolonged easing could reverse this advantage .
3. Key Drivers of Dollar Weakness Toward 96-95 ascending trendline
Bearish Factors:
Yield Decline: A drop in the 10-year yield (e.g., due to Fed cuts or recession fears) would erode USD appeal. For every 1% decline in yields, the DXY could fall 3–5% .
Risk Sentiment: A "soft landing" scenario or rally in risk assets (stocks, commodities) may reduce safe-haven USD demand .
Tariff and Geopolitical Risks: Escalating US-China/EU trade tensions could weaken the USD if global growth fears dominate .
Bullish Counterpoints:
Hawkish Fed Surprises: Strong US data (e.g., inflation, jobs) may delay rate cuts, keeping yields and the dollar elevated .
Safe-Haven Flows: Renewed geopolitical/market turmoil could revive USD demand despite lower yields .
4. Summary: Interplay Between Yields, Rates, and DXY
Factor Impact on DXY
10-Year Yield Rises Strengthens USD (investor inflows)
10-Year Yield Falls Weakens USD (capital outflows)
Fed Rate Cuts Pressures USD (narrows yield gap)
ECB/BoJ Easing Supports USD (policy divergence)
Path to 96: A combination of Fed rate cuts, declining 10-year yields, and stronger global currencies (EUR, JPY) could drive the DXY toward 96–95 .
Reversal Risks: Hawkish Fed pivots or safe-haven demand amid crises may stall the decline.
Conclusion
The DXY’s potential drop to the 96–95 zone hinges on sustained declines in the 10-year Treasury yield and Fed rate cuts, compounded by technical breakdowns. While policy divergence and safe-haven flows offer temporary USD support, broader macroeconomic shifts (e.g., tariff risks, global growth) could accelerate the sell-off. Traders should monitor yields, Fed rhetoric, and technical levels on demand floor and supply roof for confirmation of bearish or bullish momentum
1. Technical Outlook: DXY Support Breakdown and 96$ Target and Critical Support Levels.
The DXY recently breached the 200-week moving average (200-WMA), a key multi-year support level, signaling a potential trend reversal .
A sustained break below 98.00 could trigger a steeper decline toward 96.00-95$ long-term uptrend ascending trendline acting as 6months support floor connecting 2008, 2011 and 2020, . However, analyst projections also highlight the 96–95 zone as a plausible target if Fed rate cuts and macroeconomic headwinds persist .
Current Context (May 2025):
The DXY is testing 98.4 on weekly charts, with bears eyeing lower supports amid weakening USD sentiment .
A drop to ascending trend line on 6months would align with forecasts tied to Fed policy shifts and global currency strength .
2. 10-Year Bond Yield and Interest Rate Dynamics
Direct Relationship with the Dollar:
The 10-year Treasury yield and USD share a strong correlation: higher yields attract foreign capital, boosting dollar demand, while lower yields weaken the currency .
As of May 2025, the 10-year yield hovers near 4.54%, down from peaks but still elevated compared to global peers .
Impact of Rate Cuts and Policy Divergence:
Fed Rate Expectations: Markets price in five Fed rate cuts by late 2025, which would reduce yield advantages and pressure the dollar .
Policy Divergence: The ECB and BoJ are expected to maintain or ease policies, while the Fed delays cuts, temporarily supporting USD. However, prolonged easing could reverse this advantage .
3. Key Drivers of Dollar Weakness Toward 96-95 ascending trendline
Bearish Factors:
Yield Decline: A drop in the 10-year yield (e.g., due to Fed cuts or recession fears) would erode USD appeal. For every 1% decline in yields, the DXY could fall 3–5% .
Risk Sentiment: A "soft landing" scenario or rally in risk assets (stocks, commodities) may reduce safe-haven USD demand .
Tariff and Geopolitical Risks: Escalating US-China/EU trade tensions could weaken the USD if global growth fears dominate .
Bullish Counterpoints:
Hawkish Fed Surprises: Strong US data (e.g., inflation, jobs) may delay rate cuts, keeping yields and the dollar elevated .
Safe-Haven Flows: Renewed geopolitical/market turmoil could revive USD demand despite lower yields .
4. Summary: Interplay Between Yields, Rates, and DXY
Factor Impact on DXY
10-Year Yield Rises Strengthens USD (investor inflows)
10-Year Yield Falls Weakens USD (capital outflows)
Fed Rate Cuts Pressures USD (narrows yield gap)
ECB/BoJ Easing Supports USD (policy divergence)
Path to 96: A combination of Fed rate cuts, declining 10-year yields, and stronger global currencies (EUR, JPY) could drive the DXY toward 96–95 .
Reversal Risks: Hawkish Fed pivots or safe-haven demand amid crises may stall the decline.
Conclusion
The DXY’s potential drop to the 96–95 zone hinges on sustained declines in the 10-year Treasury yield and Fed rate cuts, compounded by technical breakdowns. While policy divergence and safe-haven flows offer temporary USD support, broader macroeconomic shifts (e.g., tariff risks, global growth) could accelerate the sell-off. Traders should monitor yields, Fed rhetoric, and technical levels on demand floor and supply roof for confirmation of bearish or bullish momentum
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.