THE US dollar has come under significant pressure in 2025, reversing the strength seen in the fourth quarter of 2024. The US Dollar Index (DXY), which tracks the value of the greenback against a basket of six major currencies, hit a peak of 110 in January this year. Since then, the index has been on a sustained decline, falling below the 98 level on Apr 21, its lowest since March 2022. This represented an 11 per cent drop from this year’s high.
From a technical standpoint, the DXY has been consistently rejected by a downward-sloping trendline that has acted as firm resistance since February. Each rally attempt between February and April was met with selling pressure near this trendline, reinforcing the broader bearish structure. Furthermore, the index also remains below its 20-day exponential moving average (EMA), underscoring the prevailing downside momentum.
As of May 8, the dollar appeared to be approaching a critical inflection point. The DXY is hovering near the key psychological and technical level of 100, a round number that often attracts trader attention and coincides with the same trendline that has capped prior rallies. The convergence of these factors makes 100 a major decision point for the market.
Looking ahead, two scenarios could unfold from here. On the bullish side, a break above the 100 level, particularly on a weekly closing basis, could signal that bearish momentum is fading. This view is supported by a bullish divergence forming in the Relative Strength Index (RSI) since March, which could hint at potential upside reversal. Should the DXY clear this hurdle, it may pave the way for a rebound toward the 103-resistance zone.
On the flip side, the bearish trend remains technically intact. The DXY continues to trade below its 20- and 50-day EMAs and does not break the descending trendline. Failure to decisively reclaim the 100 level could see the DXY resume its downtrend with an immediate downside target near 98, the recent low and key support zone.
For retail traders seeking exposure to broader dollar movements, the DXY offers a convenient alternative to trading individual spot forex pairs. Through DXY CFDs (contracts for difference), traders can take long or short positions depending on their market outlook, without the need to manage multiple currency exposures. This makes it suitable for short-term directional trading strategies.
With the dollar hovering at a technical crossroads, traders should remain cautious and monitor price action closely for clear confirmation before taking positions. The dollar’s next move could set the tone for the broader currency markets in the months ahead.
The writer is senior strategist, Phillip Nova
