Is the US Dollar Index bottomed? Why do I think the answer is “yes.”

Last week, the US Dollar Index ($DXY) reached its lowest level of more than three years. USDX is a basket of six major currencies weighted against greenbacks, which has been falling sharply since early January.

However, there are some early clues that USDX is counterfeiting the bottom of the market, or that are nearby. If so, that’s a big deal for the market. I will layout for you for my case.

The monthly continuation chart of nearby US Dollar Index futures shows some interesting correlations dating back to 2008. All long-term price downtrends for USDX since 2008 tend to burn within a year since 2008, as is currently occurring. The only exception is the downward trend of prices that began in June 2010 and lasted exactly a year.

Also, going back to 2008, the relative strength index overlayed on the monthly charts reached a level just under 30 in June, predicting the bottoms of major markets predicted in USDX over the past 17 years.

Recent US economic data reveals a bright, resilient US economy. Last week’s employment report from the Labor Bureau showed an unexpected increase of 147,000 in June, with unemployment at 4.1%. Unemployment rates remain in the narrow range of 4% to 4.2% since May 2024.

Until then, the general market is not considered to be an issue with US inflation levels. However, the Federal Reserve has repeatedly taken the stance that inflation levels are a little too high. The May Consumer Price Index (CPI) report showed an overall annual inflation rate of 2.4%, up slightly from the 2.3% rate in the previous month. It was primarily due to rising prices for food and transportation services. The “core” inflation rate, which excludes food and energy, remained at 2.8% for the third consecutive month.

The healthy, growing US economy and still smelly inflation are not fundamental factors that encourage central banks to cut interest rates. The US Treasury yields have recently also suggested that there will not be any interest rate cuts from the Federal Reserve anytime soon. This scenario is surrounded by US dollars.