The US dollar index has crashed this week, and a major technical pattern points to more downside in the coming months. The DXY Index plunged to a low of $99.40, down by almost 10% from the highest point this year.
Why the US dollar index is falling
The US dollar index, which tracks the greenback against a basket of currencies, has been in a freefall this year as concerns about the US economy started.
Its downtrend started after Donald Trump’s inauguration and his decision to implement tariffs on allied countries like Canada and Mexico.
The sell-off intensified on Liberation Day, when he announced the so-called reciprocal tariffs on all countries.
It then started bouncing back late last month after he confirmed that he would not fire Jerome Powell, as some analysts were expecting.
Recently, however, the dollar has crashed as the fiscal situation in the United States has worsened. On Friday, the US lost its last Triple-A credit rating when Moody’s downgraded it to AA1.
Moody’s joined S&P Global, which lowered its rating in 2011, and Fitch, which lowered it in 2023.
Unfortunately, despite the warning, the House of Representatives went on and passed a spending bill that will add over $3.8 trillion in deficit in the next decade.
The Big Beautiful Bill will extend the 2017 tax cuts and introduce new ones, including excluding overtime pay and tips from taxation. Also, the bill will remove millions of people from government programs like Medicare.
Therefore, the US dollar index crashed as investors remained concerned about the fiscal status and future demand for the currency.
Consumer confidence, GDP, and PCE data
Economic data are having a minimal impact on the DXY index these days because the Federal Reserve has already said that it will not cut rates anytime soon. Officials like Susan Collins and Raphael Bostic who talked this week insisted that the bank would maintain its patience before cutting.
The next key data to watch will come out on Tuesday, when the Conference Board will publish its consumer confidence report. Recent data showed that confidence crashed as consumers worried about the labor market and inflation. There are signs that the confidence report will show some moderation as Trump started trade talks.
The other key data will come out on Thursday when the US publishes the second GDP data estimate. Historically, this estimate rarely impacts the greenback.
The most important report will come out on Friday when the US publishes the April personal consumption expenditure (PCE) data.
DXY Index technical analysis
US dollar index chart | Source: TradingView
The daily chart shows that the DXY Index has been in a strong downtrend in the past few months. It moved from a high of $110.16 in January to the current $99.35.
The index formed a death cross pattern, a popular bearish sign. This cross happened as the 200-day and 50-day moving averages crossed each other.
It has also formed an inverse cup-and-handle pattern, a popular bearish sign. By measuring the cup’s depth, we see that it has about 9.18%, meaning that the index will likely drop to $90 in the coming months.
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