Technical Analysis Overview
The US Dollar Index (DXY) showed a minor increase in the Asian session, recovering from its recent low around 97.90-97.85, a level not seen since early October. It climbed to 98.30, but any further appreciation might be limited due to dovish expectations from the Federal Reserve.
Technically, the failure to maintain momentum beyond the 200-day Simple Moving Average (SMA) and a dip below the 100-day SMA are favouring USD bears. Oscillators on the daily chart remain negative, suggesting any upward move could be met with selling pressure, as the 100-day SMA acts as a resistance near 98.63.
Currently, the 100-day SMA is below the falling 200-day SMA, confirming a bearish market sentiment. The MACD is under both the Signal line and zero, with a contracting negative histogram suggesting reducing downside momentum. The RSI indicates tentative stabilisation at 35, just above the lower end of the neutral range.
Downside risks persist while the DXY remains under trend filters, with resistance capped at the 200-day SMA of 99.25. The MACD and RSI suggest a weak recovery, with stronger upside potential only indicated by a sustained move above moving average resistance levels.
We see the US Dollar Index holding steady around the 98.30 level, but the recent bounce from the 97.90 area seems fragile. The prevailing sentiment is that the path of least resistance is to the downside for the dollar. This view is supported by the technical setup, which suggests any upward moves may be short-lived selling opportunities.
Trading Strategies and Market Context
Derivative traders should consider positioning for further dollar weakness in the coming weeks. The Federal Reserve’s dovish language at its last meeting in early December 2025 has cemented expectations for a softer monetary policy into the new year. This was further reinforced by the November 2025 Consumer Price Index (CPI) report, which showed year-over-year inflation cooling to 2.3%, giving the Fed more room to consider rate cuts in 2026.
Given this context, buying DXY put options with strike prices below the recent 97.90 low could be a viable strategy to capitalize on a potential breakdown. We note the failure to sustain momentum above the 200-day moving average, a pattern we also observed earlier in the year. The historical tightening cycle of 2022-2023 is now showing its lagging effects on the economy, as seen in the latest jobs report which showed non-farm payrolls in November 2025 at just 110,000, well below consensus estimates.
Another approach is to view any strength toward the 100-day moving average, currently at 98.63, as an opportunity to initiate short positions. Traders could consider selling DXY futures or establishing bearish call spreads with a ceiling around the formidable 99.25 resistance level. This strategy aligns with the negative readings on daily oscillators like the MACD and RSI, which are not yet in oversold territory and thus allow for more downside.
