Why the Dollar Bounced
- Trump walked back threats to fire Fed Chair Jerome Powell
- Rhetoric on China tariffs softened, easing some geopolitical stress
- Short-term illiquidity triggered stop-outs on key pairs
Still, the big picture hasn’t changed. The dollar has broadly weakened this year on rising fears that Trump’s policies may tip the US economy into a recession. According to CFTC data, speculative net short positions on the dollar (vs. 10 major currencies) ballooned to $40 billion last week—the largest since October.
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DXY
Dollar Index hit its weakest level since late 2023 on Monday, only to bounce back 1% by Wednesday. That spike forced some traders out of bearish bets, particularly those chasing momentum on key levels like EUR/USD 1.1500 and USD/JPY 140.00.
We have seen the first bullish Daily fractal break since mid-march
What Traders Are Watching
- Will Powell's position hold long-term, or is this just a pause in pressure?
- How will capital flows react if US-China talks stall again?
- Can the dollar rally hold, or is this a prime opportunity to re-enter short trades?
Brent Donnelly of Spectra FX and Nomura’s Antony Foster agree: the rally may be short-lived. As Foster puts it, traders got "stopped out" on the break of key technical levels—but the conviction for a weaker dollar remains intact.
Trader Takeaway
This week’s price action looks more like a tactical shakeout than a trend reversal. If you're trading the dollar, look for re-entry opportunities on the short side as price approaches key resistance zones—especially if macro data or headlines reintroduce downside risk.
Author
Rutger Lokin is a seasoned market analyst and co-founder of The Trading Academy, with 7 years of experience trading both technically and fundamentally, grounded in macroeconomics. Holding a bachelor’s degree in Computer Science and Economics, Rutger combines analytical precision with economic insight. His dual proficiency in technical analysis and fundamental economic drivers provides uniquely sharp perspectives on market trends and dynamics. Rutger leverages this expertise to excel in navigating the complexities of the financial markets.
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