In January, a two-part rationale was presented for a decline in the USD.
The first point noted a broken steep upward trend line for the USD, while the second indicated that the first year of Trump’s presidency saw a downward trend for the currency.
A potential support line was suggested just below the current rate. Feedback is encouraged.
Technical And Historical Reasoning
That earlier breakdown laid out a technical and historical reasoning behind why the US dollar might be heading down.
On the technical side, the key upward trend line—one that had been in place for some time—was breached to the downside. These types of breaks tend to carry weight in market analysis because they often reflect deeper shifts in sentiment. Although the breach may have seemed modest at first, it can very easily trigger larger moves, especially when long-held positions start to unwind. Momentum, after all, has a habit of accelerating quickly once a major threshold is crossed.
Historically, the second element referenced the pattern from the start of 2017. During the early phase of Trump’s presidency, the dollar followed a clear downward trajectory despite economic and monetary policy expectations pointing in the other direction. That counterintuitive move is important; it hinted that political uncertainty or external trade factors might have been more influential at the time than domestic economic forecasts. So when we saw similar setups again earlier this year, the inference was that a parallel might be forming.
Market Behavior And Trader Strategy
Now, turning to what was described as a potential support line just beneath the current market rate: that’s a location on the chart where we may see demand re-enter the field. But whether the line will hold or not depends on how price behaves around it. If there’s a brief bounce followed by heavy selling pressure, this would typically imply the support is either weak or too visible—a place where too many eyes are watching, often setting up for stop-driven price flicks. We tend to treat those with caution. Watching how momentum indicators behave at this level could offer more clarity.
For directional traders, that means positioning needs to remain nimble. If the dollar fails to reclaim ground above the broken trend line in the coming sessions, probabilities shift. We would be more inclined to accept further depreciation, particularly if other currencies begin to strengthen not just due to their own domestic data, but in relative terms to deteriorating dollar sentiment.
Shorter-term implied volatilities can also offer useful signals at this stage. If pricing begins to reflect a rising cost to hedge downside dollar exposure, that’s a telltale sign that market makers sense imbalance. On our side, this tends to nudge us towards strategies that lean into buying convexity rather than selling it.
We’ve also noticed increased positioning in related futures markets. Net speculative length in the dollar has not yet shown marked unwinding, suggesting that if selling begins in earnest, some forcefully driven moves could emerge. That’s important for calibration. Moving prematurely, or doubling down right as stops cluster, rarely ends well.
In short, while the original rationale provided a strong base, what we’re watching now is whether the environment confirms or contradicts that foundation. As technical levels get tested and sentiment shows its hand, we’ll have a better view of whether to lean further into directional exposure or shift towards neutrality. The next few trading weeks matter more than they typically do.
