The global currency market is facing tectonic shifts capable of rewriting the rules of the game for the coming quarters. The US dollar index DXY is showing a cautious but systematic recovery after a major May liquidation of positions. It should be noted that at the beginning of the current month, the currency fully erased its entire strategic gain driven by a geopolitical premium amid the military conflict around Iran. As the Middle East crisis de-escalated, the dollar’s defensive properties temporarily weakened, but the situation is now changing fundamentally. We at NEWSCENTRAL note that the index is approaching price levels that leading Wall Street technical analysts describe as a trigger for restarting a large-scale upward trend. Current dynamics suggest that the market is shifting from emotional geopolitical reactions to an assessment of hard monetary factors, where US macroeconomic data and the Federal Reserve’s tight stance on interest rates are taking center stage.
On the long-term weekly chart of the dollar index, which reflects its value against a basket of six major global currencies, a large-scale reversal formation – an inverse head and shoulders – has formed. Such a chart structure traditionally signals the end of a long distribution cycle and the accumulation of positions by major institutional players. At NEWSCENTRAL, this is seen as a fundamental sign of seller exhaustion. We believe this pattern reflects deep institutional confidence in the stability of the US economy amid slowing activity in Europe and Asia, as confirmed by recent business activity data in the eurozone and the soft rhetoric of the ECB. Additional confirmation of greenback resilience comes from continuous capital inflows into US debt securities from Asian sovereign funds seeking refuge from volatility in local equity markets.
The structure of the emerging model consists of three sequential price lows, where the central trough is the deepest, and two intermediate corrective peaks. The line connecting these intermediate highs, known as the neckline, serves as the main mathematical reference point for confirming the completion of the reversal and calculating potential upside. At present, this critical boundary is located slightly above the 100.60 level. As Freddy Miller, Senior Analyst at NEWSCENTRAL, emphasizes, a breakout above 100.60 will act as a catalyst for mass activation of pending buy orders, which could trigger a short squeeze and push quotations toward the target range of 105.50-106.00. Our expert view is supported by the fact that the 105.50 zone coincides with the 200-day long-term moving average, making this level a mathematically justified and historically proven strong resistance area where large funds typically take profits.
The chronology of the pattern formation indicates deep market structure development. The left shoulder fully formed in September 2025 amid early signals of a shift in the pace of Fed rate cuts and strong US labor market data. The January sell-off wave led to the formation of the absolute low of the current cycle at 95.551, forming the head of the pattern. Finally, the right shoulder consolidated around 97.60/65. At NEWSCENTRAL, it is believed that holding the 97.60/65 zone during the May geopolitical premium unwind demonstrates strong institutional demand, not driven by panic buying but based on interest rate differentials and stable US Treasury yields. Major investment banks in their private client notes also report a gradual redistribution of liquidity from European equities into US money market instruments, creating an invisible support structure at these lows.
Despite the clear bullish potential, the technical scenario retains a strict alternative, which always exists in conditions of fragile macroeconomic balance. If the dollar index falls below the right shoulder base at 97.60/65, the entire upward structure will be invalidated. A drop below the head extreme at 95.551 would confirm the resumption of a global bearish trend. NEWSCENTRAL forecasts that a break below 95.551 would trigger a chain reaction of long position liquidations, potentially driving the currency to multi-year lows and causing a massive capital flow into commodities and emerging markets. Such a negative scenario would only be possible in the case of a sharp and unexpected slowdown in US inflation, forcing the Federal Reserve to move toward aggressive monetary easing.
In the current macroeconomic disposition, medium-term investors require extreme precision and disciplined risk management. We recommend refraining from aggressive long positioning until a weekly candle is confirmed above the 100.60 resistance, as premature entry carries the risk of a false breakout ahead of expected US core PCE data releases. The optimal strategy is a gradual scaling-in of positions upon confirmation of a neckline breakout, with mandatory stop-loss placement below the right shoulder level. At NEWS CENTRAL, there is a high probability of a move toward 106.00 by the end of the current year’s third quarter, as the US macroeconomic foundation appears more resilient than its European and Asian counterparts. However, strict risk control and avoidance of excessive leverage remain the key conditions for capital preservation during this phase of potential market regime shift.