US Dollar Forecast: DXY Pulls Back as Risk Rally Undermines Safe-Haven Demand

Dollar Reverses as Risk Assets Rally Back to Life

The U.S. Dollar finished lower against a basket of major currencies on Friday, posting a closing price reversal top, which could be signaling the start of a 2 to 3 day sell-off. I don’t think it’s any coincidence that the weakness correlated with rallies in the U.S. stock market, gold, silver and bitcoin. I think it means that last week, the dollar played the role of safe-haven while all the risk assets were collapsing. It didn’t match the volatility in those other markets, but it was there when investors needed to park money, which is exactly what a safe-haven does.

On Friday, DXY settled at 97.681, down 0.265 or -0.27%.

Safe-Haven Role Fulfilled, Now Unwinding

I believe it would’ve gone much higher except for the uncertainty over the timing of the Fed’s first rate cut in 2026, which was compounded this week when labor market news came in on the disappointing side.

Labor Market Weakness Caps Dollar’s Breakout Attempt

Not only was the January Non-Farm Payrolls report moved to next week, but the Challenger layoffs report came in dollar bearish for January as well as the ADP private sector numbers and the weekly initial claims report. This news may have stopped the DXY from jumping the 50-day and 200-day moving averages, but it also proves that sellers are still in control and they are willing to bend a little but not break.

Sellers Still in Control Despite Strong Weekly Gains

Their long-term forecast is calling for a weak dollar, riding the tail of at least two Fed rate cuts. I don’t think the powers that be want it to go down too much, too fast so they’ll let it go up periodically to reload at better prices.

Daily Chart Shows Bearish Setup Below Key Moving Averages

The daily chart is bearish despite a strong week of gains. The daily swing chart shows the trend down with 99.492 the nearest top and change in trend level. A trade through the recent swing bottom at 95.551 will signal a resumption of the downtrend.

The index is also trading on the weak side of the 50-day moving average at 98.357 and the 200-day moving average at 98.585. The shorter-term 50-day MA under the 200-day MA is also a sign of weakness.

61.8% Fibonacci Level Caps Rally at 97.973

The main range is 99.492 to 95.551. On Friday, the buying stopped at 97.973, just under the 61.8% level at 97.987. The downside momentum fueled by the selling pressure has put the 50% level at 97.522 at risk.

Next Downside Target: 96.762 to 96.476 Zone

The new short-term range is 95.551 to 97.973. Its retracement zone at 96.762 to 96.476 is the next downside target.

Payrolls Report and Risk Appetite Will Drive Next Move

Looking ahead, labor market weakness should be enough to cap gains so pay attention to next week’s non-farm payrolls report. However, I think renewed interest in risky assets like stocks, gold, silver and bitcoin could trigger strong safe-haven liquidation in the dollar, leading to a steep break into at least 96.762 over the near-term.

More Information in our Economic Calendar.