US Dollar Index (DXY) on pace to break 97.00 – Why is the Dollar falling ahead of the FOMC?

Ben Graham · 2 horas atrás

The Dollar has taken quite a significant hit after its strong start to 2026.

This is precisely what happens when technicals align with changing fundamentals. As noted in our pre-Greenland chaos Analysis, the Dollar Index was already showing signs of imminent technical weakness.

So when Donald Trump decided not only to launch an investigation into Jerome Powell but also to threaten his historic allies, what was seen as a slow, progressive dedollarization quickly became a catastrophe for the US Dollar.

Some European funds are selling their Dollar-denominated debt assets in concern over new, aggressive policies from the current administration and, by actively seeking alternatives, reducing dollar demand – this is leading, in part, to the current decline.

Combined with a seasonal tendency for the US Dollar to drop ahead of interest rate decisions during cutting cycles, the weekly drop is getting extreme – fewer participants can absorb sudden outflows ahead of FOMC Meetings for risk-management reasons, amplifying such moves.

This dedollarization explains the ongoing run in Gold (which just hit $5,000 today) and other metals – The Debasement Trade for those unfamiliar with the trending financial term.

Dollar perf 1901 — US Dollar Performance against other FX Majors since last Thursday – Source: TradingView

Looking back at the September cut, for example, the Dollar Index had reached 2025 yearly lows, a fast-paced selloff just two days ahead of the Rate Decision.

The current situation shows similar conditions, despite no rate cuts anticipated – What interests traders is whether the selloff will continue after the FOMC.

For additional foundational context, I strongly encourage you to explore our FOMC Preview.

With the Fed Funds rate expected to be kept unchanged, investors and institutions will be listening closely to Powell's speech.

A bit less than two rate cuts are currently priced for 2026. With labor conditions seemingly worsening only slightly and inflation remaining closer to 3% than 2% (despite some improvements), the Fed Chair doesn't have many reasons to turn dovish, but the current pricing is still reasonable.

Essentially, the more resilient US economy supports the Dollar and could lead to sudden inflows back into the Greenback after the meeting.

The difference maker will be found in unpredictable events:

The nomination of the next Fed Chair could have a significant influence on the Dollar demand (particularly if Rick Rieder gets selected)
If Trump moves to intervene in Iran, the Dollar should appreciate suddenly in pro-dollar risk-averse Market conditions – Kind of similar to what happened after Venezuela.
If Trump actually pushes his intense rhetoric further with allies, however, the Dollar outflows will be severe – you would see the results in the Dollar Index flashing below 2025 lows.
The FOMC event itself could support the USD but would depend on Powell's tone regarding his 2026 outlook.

While we're here, let's see what the charts say in our multi-timeframe analysis of the US Dollar Index (DXY) to see if there is still much left in the ongoing down move.

Discover:

Dollar Index (DXY) Multi-Timeframe Analysis

Daily Chart

The Technical picture changed suddenly over the past week.

Bulls were taking the Index back towards the 99.50 level but with some short-timeframe resistances, bear divergences combined with Trump actually pushing the Greenland theme, the fused technicals and fundamentals had an immediate effect on the DXY, down 2.50% until today.

Last week led to a huge gap lower today, with the pre-FOMC position closing effect pushing the Index to test the 96.50 to 97.00 Support.

Whether it holds or breaks in the next 1.5 sessions doesn't matter much; the most important will be to see if the Dollar remains above or below after the FOMC.

Closing above 97.00 should lead to a slow but consistent rebound back towards 99.00
Below however opens the door to test the 2025 lows
- These scenarios are not considering any black swan events.

4H Chart and Technical Levels

4h dxy 2601 — Dollar Index (DXY) 4H Chart. January 26, 2026 – Source: TradingView

Looking closer, the question remains whether the gap is an exhaustion/low volume gap (implying that an extreme is reached) or whether this is an actual runaway gap (meaning further downside).

To help tilt the scales, it is essential to track the path of least resistance.

With the 4H RSI in extreme oversold territory and a key support coming into effect, a rebound makes sense. The question is when.

Keep in mind that the buying could still not be so sudden as traders remain on the sidelines ahead of the key risk-events coming – Think of how such views could be expressed in different FX pairs.

Levels to place on your DXY charts:

Resistance Levels

August Range Bull/Bear Pivot 97.25 to 97.60
98.00 Main Support turned Minor Resistance
Higher timeframe Pivotal Resistance 98.80 to 99.00
99.40 to 99.50 January Resistance (last Friday levels)
100.376 November highs

Support Levels

2025 Lows Major support 96.50 to 97.00
Session lows 96.80
September FOMC Lows 96.20
Early 2022 Consolidation just below 96.00
95.00 Main psychologic support

1H Chart

DXY 1h 20262601 — Dollar Index (DXY) 1H Chart. January 26, 2026 – Source: TradingView

Looking closer, one things looks clear – The downside is stalling after a brutal descent.

But a slowdown in a downtrend doesn't imply an imminent rebound, buyers will first have to show up.

With the selloff stalling at the descending channel lows, imminent downside keeps a lower probability setup.

Hence from here, a consolidation range until the FOMC between 96.80 and 97.30 is highly probable.

After the FOMC however, the rest will be to see if bulls show up for an upside breakout (to a least test the upper bound of the channel ~98.20).

In case they don't, the selloff may continue.

Safe Trades!

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