USD Index signals further downside after key technical breakdown

THE US dollar has dominated global headlines in recent months following a steep and persistent decline, fuelling strong rallies across major currencies and precious metals. To assess the broader strength of the greenback, market participants often refer to the US Dollar Index, or DXY, which measures the dollar’s performance against a basket of major rival currencies including the euro, yen and pound.

From a longer-term perspective, the DXY experienced a notably weak 2025. The index began the year near 108.9 before declining sharply to end 2025 at 97.9, representing a drop of about 9.5 per cent. A key technical development occurred in April 2025, when the index decisively broke below the psychologically important level at 100. Since then, the DXY has struggled to reclaim this threshold and spent much of the year trading in a relatively tight range between 96 and 100, signalling a period of consolidation within a broader bearish trend.

As at Jan 30, the DXY had extended its decline and was hovering just above the 96 level after briefly dipping below 95.5, marking a fresh four-year low. While fundamental drivers such as interest rate expectations and fiscal concerns continue to shape market sentiment, the technical signals on the DXY chart suggest that downside risks remain firmly in play.

The recent sharp sell-off represents a bearish breakout from an ascending triangle consolidation pattern that has been forming since June 2025. Crucially, this pattern developed after a sustained downtrend, increasing the probability of bearish continuation rather than a trend reversal. In such scenarios, an ascending triangle can often act as a consolidation phase, with the downside breakout confirming renewed selling pressure.

The DXY remains capped below its long-term Exponential Moving Averages (EMA). Since the formation of a death cross in March last year, when the 50-day EMA crossed below the 200-day EMA, the index has consistently failed to regain these trend indicators. In strong downtrends, prices are often contained below the EMAs, which act as a dynamic resistance zone. Each rejection from this area reinforces bearish momentum and limits the sustainability of any rebound attempts.

Looking ahead, the latest technical breakdown opens the door for further weakness in 2026. An initial support zone is seen around the 94 level, which may offer temporary stabilisation. However, should bearish momentum intensify, a deeper move towards the 90 handle becomes increasingly plausible by the first half of 2026.

SEE ALSO

The weak yen and the weakening US dollar are signs of financial fragility

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

In the near term, volatility is likely to remain elevated. Short-term corrective rebounds towards the 98 level are possible, particularly as this area coincides with the current EMA resistance. Such pullbacks, however, may ultimately prove corrective in nature before the US dollar resumes its broader downtrend.

The writer is senior strategist at Phillip Nova