Same Range, Same Playbook for The US Dollar

The US Dollar Index $DXY is sitting at the top end of the range it’s been stuck in for the past two years, and the stage is set for a move lower. 

This has significant implications for a variety of asset classes, including precious metals, equities, and Bitcoin, all of which stand to benefit from a weaker dollar environment.

Back in October, Steve highlighted the divergence in the dollar and the potential for a bounce higher. 

In a matter of days, the dollar ripped in a nearly vertical line toward the upper bounds of its range.

Today, the picture is very different than it was back in October. 

With a tough seasonal period setting in, along with resistance overhead and a bearish momentum divergence, our tactical outlook for the dollar is lower from here.

A few weeks ago, the dollar briefly broke out of its range but almost immediately reversed, putting in a failed move.

This often signals a quick reversal in the trend. We’re looking out for downside follow-through to see if this will be the case for DXY.

DXY has remained resilient over the past few sessions. It’s still hanging around the range highs near 106. A little downside momentum is all we need to kick off a move back to the lower bounds near 100.

Either, the range holds and the dollar moves lower.

The dollar’s been stuck in a range for a while, and that reversal up near resistance? It’s telling us the range will likely hold. Next move? Probably lower. That’s the high-probability outcome right now, plain and simple.

Or we see a break out above the range and we move higher. 

Could the dollar break out to the upside? 

Sure, anything’s possible, but the odds aren’t in its favor. To see a sustained breakout above the range despite the divergence, it would have to signal a much broader shift in trend. 

Is it in the cards? Maybe, but for now, that’s the lower probability scenario. 

Keep it simple: trade the range until it doesn’t hold.

A weaker dollar creates the perfect backdrop for precious metals, equities, and Bitcoin to shine. With the DXY reversing and momentum favoring a move lower, risk assets are set to benefit.

The trade is clear: as long as the dollar remains under pressure, stay long assets that thrive in a weaker-dollar environment. Let’s see how this plays out.