Since the beginning of the year, the US dollar (DXY) has been the weakest currency in the floating exchange market (FX). However, since mid-July, a technical rebound has begun, fueled by several fundamental factors, notably the Federal Reserve’s monetary hawkishness. But can this upward move be interpreted as a true annual bottom?
Or is it merely a temporary short squeeze before a return to the lows? As high finance fundamentals swing back and forth, let’s assess the technical outlook for the US dollar (DXY).
1) Rate cut expected on Wednesday, September 17 – fundamentals in flux
The recent rebound in the US dollar coincides with the Federal Reserve's firm stance in refusing, for now, to resume rate cuts, which have been on hold since late 2024. In its latest monetary policy decision on July 30, the Fed reaffirmed that no tangible factors justify a rapid rate cut. Disinflation appears paused, and the institution prefers to wait until fall to assess the impact of tariff measures on the core PCE index (inflation excluding food and energy).
However, a major red flag emerged with the release of a very poor Non-Farm Payrolls (NFP) report on August 1, reflecting a significant weakening in the labor market — a fundamental red alert!
The Fed has made it clear that the evolution of employment will be a key factor in its September decision. A weaker labor market could accelerate a monetary policy shift, renewing downward pressure on the US dollar.
2) Technical analysis of the US dollar (DXY): short-term rebound... but no medium-term trend reversal yet
From a technical standpoint, July's rebound is based on medium/long-term support levels that have so far acted as potential reversal bases. Can we legitimately speak of an annual low for the DXY? Has a major resistance been broken? The answer remains NO for now.
Weekly and monthly charts do not yet show a clear bullish reversal pattern. Some bullish divergence signals are emerging, notably on the RSI and LMACD, but they remain insufficient to confirm a lasting regime shift. A comparison with the 2018 and 2021 lows is telling: at those times, technical divergences were far more pronounced and bullish reversal structures had been confirmed.
The Elliott wave approach suggests a rebound is plausible within a corrective structure, but it does not yet guarantee a major trend reversal.
Data from the CFTC’s Commitments of Traders (COT) report and ETF flows tied to the dollar indicate some hesitation among institutional investors. While short positions have declined, there’s no clear evidence of large-scale buying.
In summary, the US dollar rebound since mid-July is real but fragile. As long as technical signals remain unclear and the labor market is flashing red, betting on a sustainable trend reversal remains risky. The annual low may be in place, but it is not yet confirmed from a technical, macroeconomic, or behavioral standpoint.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Or is it merely a temporary short squeeze before a return to the lows? As high finance fundamentals swing back and forth, let’s assess the technical outlook for the US dollar (DXY).
1) Rate cut expected on Wednesday, September 17 – fundamentals in flux
The recent rebound in the US dollar coincides with the Federal Reserve's firm stance in refusing, for now, to resume rate cuts, which have been on hold since late 2024. In its latest monetary policy decision on July 30, the Fed reaffirmed that no tangible factors justify a rapid rate cut. Disinflation appears paused, and the institution prefers to wait until fall to assess the impact of tariff measures on the core PCE index (inflation excluding food and energy).
However, a major red flag emerged with the release of a very poor Non-Farm Payrolls (NFP) report on August 1, reflecting a significant weakening in the labor market — a fundamental red alert!
The Fed has made it clear that the evolution of employment will be a key factor in its September decision. A weaker labor market could accelerate a monetary policy shift, renewing downward pressure on the US dollar.
2) Technical analysis of the US dollar (DXY): short-term rebound... but no medium-term trend reversal yet
From a technical standpoint, July's rebound is based on medium/long-term support levels that have so far acted as potential reversal bases. Can we legitimately speak of an annual low for the DXY? Has a major resistance been broken? The answer remains NO for now.
Weekly and monthly charts do not yet show a clear bullish reversal pattern. Some bullish divergence signals are emerging, notably on the RSI and LMACD, but they remain insufficient to confirm a lasting regime shift. A comparison with the 2018 and 2021 lows is telling: at those times, technical divergences were far more pronounced and bullish reversal structures had been confirmed.
The Elliott wave approach suggests a rebound is plausible within a corrective structure, but it does not yet guarantee a major trend reversal.
Data from the CFTC’s Commitments of Traders (COT) report and ETF flows tied to the dollar indicate some hesitation among institutional investors. While short positions have declined, there’s no clear evidence of large-scale buying.
In summary, the US dollar rebound since mid-July is real but fragile. As long as technical signals remain unclear and the labor market is flashing red, betting on a sustainable trend reversal remains risky. The annual low may be in place, but it is not yet confirmed from a technical, macroeconomic, or behavioral standpoint.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
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.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
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.