Dollar Seeks Direction in 2026
Dollar Seeks Direction in 2026
The US Dollar (DXY) had a rough year in 2025 as the greenback index lost nearly 10% of its value against a basket of major currencies. The dollar’s forex losses paled in comparison to its drop in terms of the price of gold, which gained over 60% for the year as global markets accelerated the “debasement trade”. After moving higher during the first half of January 2026 the dollar has slipped back and remains essentially unchanged year-to-date.
Most analysts expect dollar weakness to persist during 2026 if the Fed continues to gradually lower interest rates. Fed policy will be driven by upcoming economic data related to inflation and employment. Evidence of slowing inflation or rising unemployment would prompt further rate cuts and likely selling pressure on the dollar. Conversely, sticky inflation or strong employment numbers would keep the Fed on hold and provide ongoing support for DXY.
Most of the dollar’s losses in 2025 occurred during the first quarter as global markets reacted to the new US administration and its economic policies. DXY then settled into a range between 96 and 100 where it currently remains (98.3 on 1/23). A breakout in either direction should result in a substantial directional move.
What’s Next for DXY
Based on the monthly chart (above) the dollar remains just above 15-year trendline support. A break below 96 would potentially set the stage for an extended drop, possibly mirroring the move that occurred between 2001 and 2009. The first logical downside target would be a test of the double bottom at the 88 price level, with the potential to test long-term demand around the 80 level.
If DXY moves above 100 it would most likely result in a rally to an important weekly supply zone at approximately 104. Ongoing strength could take DXY to a retest of the 2025 high at 110. The first indication of strength would be an upside violation of the current 2026 high at 99.50.
Traders should continue to treat DXY as a sideways market until there is a violation of the 96-100 range (“Recent Range” on above chart). Based on long term cycles a downside breakout will set up an extended bear market. However, the dollar is still the world’s reserve currency, so any downside move will be dampened by the natural demand for dollars in the global marketplace. This means that any downside move will be a gradual erosion rather than a dramatic drop. It is also critical to recognize that the Euro is the most heavily weighted component in the dollar index, so the fate of the European currency will have a strong inverse effect on DXY.