Currency Report: It’s Shakeout Season in the Dollar

When a structural trend reaches a turning point… expect volatility. We’re a month into 2026, and the US Dollar is already stirring the pot– making big moves and flirting with the completion of a major top.

Last week, the DXY tapped new four-year lows after violating a critical support shelf around $96. 

This level marks the lower bounds of a multi-month range as well as a touch point in an uptrend nearly 20 years in the making. 

But the breakdown didn’t stick. 

Failed moves tend to fuel fast moves in the opposite direction, and that’s what’s happening now. 

With so much of the bullish playbook currently relying on a weak Dollar, the rebound rally of the past few days has been felt by risk assets far and wide. 

For this reason, we’re dialed in to how price reacts at this key level… here’s a look at the most important chart in the market:

A sustained move above the 100–101 area would flip the switch to risk-off mode for ex-US and weak-Dollar trades. There is still a lot of work to do before that happens.

While we’ve already seen an aggressive unwind in precious metals just over the past few days as the dollar has ripped higher, the more durable weak-dollar themes, namely developed and emerging markets, remain intact. A DXY above 100 probably changes that.

So let’s take a step back and remember what drives the DXY. 

The Euro, Japanese Yen, British Pound, and Canadian Dollar collectively make up over 90% of this index. 

Collectively, these paint a clearer picture.. One that confirms the short-term patterns at play.

Euro sits in the driver’s seat. This breakout is in jeopardy, with 1.1830 our line in the sand from a tactical standpoint. If we’re below there, it is a failed breakout and supports a dollar rally.

The British Pound and Canadian Dollar look similar. Both failed to stick breakouts from multi-month bases near 1.3791 (GBP) and 0.7390 (CAD). Although the primary trends remain constructive, over shorter timeframes, the bias is lower.

The Japanese Yen, a laggard true to form, found support near 0.00629. Holding that level keeps the Yen from propping up DXY and can act as a tailwind for Dollar weakness. 

Bottom line: near-term chop with risk of a tactical rally toward 100, but the primary DXY trend remains lower.

Outside the majors, EM FX has outperformed all cycle and held firm through the Dollar’s counter-trend bounces. 

This time is no different, further suggesting the bearish USD regime is intact over longer timeframes.

So for now, our primary risk levels are clear. Above 100–101, we cut risk in our weak-Dollar book. 

Below, and we’re likely to deal with some further volatility, but the playbook is to stick with our ex-US equities, EM FX, and real-asset leadership. 

If and when we see a decisive break below the 96 level, we press the gas harder on those themes. 

I think that’s where we end up… the question is just the path to getting there.