The US Dollar Index $DXY has been locked in a messy range for over a year, wobbling just enough to make everyone second-guess themselves, trapping bears on breakdown attempts and bulls on squeeze attempts.
After printing fresh four-year lows a month ago, there was no follow-through, and DXY has been moving higher since. And now sentiment has shifted to extremely bearish, with the infamous magazine cover indicator triggering twice this month.
We were early to the weak-dollar theme, but we never love it when the latecomers show up and start crowding the trade.
When we focus on price, the structural trend still remains bearish, but the tactical timeframe has plenty of room to punish the new consensus.
After all, a price range is just stored energy. And right now, there is a lot of it. The DXY is sitting at one of its most compressed volatility levels in years:
We have seen this type of setup before. Everyone piles into the obvious trade after it has already tired out, and then a countertrend swing comes and wipes out the crowd.
It doesn’t have to completely reverse the trend, just move enough to shake out the weak hands and latecomers.
Silver reminded latecomers of that the hard way. Now ex-US and emerging markets are getting the same kind of attention.
Price leads sentiment, not the other way around. And the fact of the matter is that this environment demands patience.
Right now, patience is the ultimate pain trade, especially if you have been riding these trends and taking profits along the way.
Intermarket signals are increasingly mixed and getting murkier by the day. Dispersion has been the story all year, and it’s been no different in the currency markets.
For now, we’re focusing on the levels that have worked for us all cycle, as they remain in play:
The primary trend remains bearish, while the tactical trend is leaning bullish. A breakout above the 98 - 99 level would heighten the stakes for dollar bears and would signal this countertrend wave is real.
If the Dollar rips above our line in the sand— 100 - 101— we rethink our entire strategy.
On the other hand, a breakdown below 96 would signal a renewal of the primary downtrend.
The next clean move out of this range should tell us a lot about how aggressive we want to be heading into the second quarter of 2026.
For now, stay safe, be patient, and manage risk.
Thanks for reading.
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