DXY: Price Analysis. Forecast. Can the Dollar Overcome Its Weakness?

[Ben Graham]

On Monday, the U.S. Dollar Index (DXY), which measures the dollar against a basket of six currencies, was strengthening. Trading is low due to the approaching New Year holidays.

The main event of this week will be the publication of the minutes from the December Federal Reserve meeting, during which the interest rate was lowered by 25 basis points, establishing a range of 3.50% to 3.75%. Over the course of 2025, the Fed reduced rates by a total of 75 basis points. Market participants are pricing in at least two more rate cuts in 2026, following a cooling labor market and declining inflation expectations, which could weaken the dollar against other currencies.

According to the CME FedWatch tool, there is an 18.3% probability of a rate cut at the January meeting.

Last week, U.S. President Donald Trump stated that he would like the next Fed Chair to reduce rates if the market performs well. Such comments could heighten concerns about the Fed's independence and ultimately weaken the dollar index.

However, geopolitical tensions and uncertainties continue to support the dollar as a safe-haven asset. On Sunday, Trump reported significant progress in negotiations with Vladimir Zelensky toward a potential peace agreement; however, precise timelines for achieving it remain undefined and may take several weeks.

To improve trading opportunities, U.S. housing sales data for November is scheduled for publication on Monday, which may create volatility for the dollar.

Technical Analysis

From a technical perspective, oscillators on the daily chart are negative, indicating a bearish control of the situation. The nearest resistance is at 98.10, above which the 9-day EMA serves as an obstacle. The 14-day EMA is at 98.35, and only after the 100-day SMA is surpassed will bulls be able to expect strength.

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