Table of Contents
The dollar's brutal slide may be setting up for a classic reversal as technical patterns and rate cut catalysts align.
Key Takeaways
- DXY has crashed to the bottom of its massive parallel channel that's held since 2008
- Year-to-date dollar losses already match the entire 2017 decline but happened much faster
- September rate cuts have 70-75% probability and historically trigger dollar rallies, not weakness
- Current cycle mirrors 2016-2017 pattern with fake breakdown followed by bounce before final low
- RSI indicators across multiple timeframes show oversold conditions at key support levels
- Monthly RSI has held support throughout entire uptrend except briefly in December 2020
- Tariff deadlines and policy changes could provide additional upward pressure on dollar
- Dollar correlation with crypto and risk assets isn't as strong as most people assume
- Channel integrity suggests higher low compared to previous cycle rather than continued collapse
- Market sentiment turning bearish on dollar right at historical turning points like clockwork
The Predicted Path Playing Out Exactly as Called
So here's what's wild - this dollar collapse was actually mapped out months ago, and it's playing out almost exactly as predicted. Back in September, the call was pretty specific: dollar rallies when they cut rates to 110, sweeps the high, then collapses into the post-election year.
- The rally happened right on schedule, pushing up to about 110 and sweeping previous highs
- Then came the collapse phase, dropping into the predicted range by mid-2025
- What's fascinating is how much pushback there was when rate cuts were mentioned as bullish for the dollar
- People kept saying "they're cutting rates, no way the dollar rallies" and then it did exactly that
- Now that it's crashed, everyone's flipping to "it's going to all new lows forever"
- This is classic market psychology - maximum pessimism right at potential turning points
The timing of this sentiment shift is almost comical. When the dollar was rallying, everyone thought it would go to new highs. Now that it's crashed, everyone thinks it's going to zero. But if you've been following dollar cycles for any length of time, this pattern repeats with clockwork precision.
- Post-election years have consistently delivered dollar weakness followed by reversals
- The current positioning feels eerily similar to previous cycle lows
- Market participants always lose faith in the dollar at exactly the wrong time
- Rate cuts have historically been bullish catalysts, not bearish ones for the dollar
What's really interesting is how this plays into the broader fiat currency discussion. Yeah, all fiat currencies are losing purchasing power over time - that's why Bitcoin exists. But the DXY isn't measuring dollar vs Bitcoin or gold, it's dollar vs other fiat currencies. So when we talk bearish dollar, we're talking bearish relative to euros and yen, not relative to hard assets.
Technical Patterns Screaming Potential Reversal
The technical setup here is actually pretty compelling if you step back and look at the bigger picture. Since the 2008 financial crisis, the dollar's been trading in this massive parallel channel, and right now we're sitting at the absolute bottom of it.
- You can connect the lows going back to 2008 and see we're right at that support line
- The channel's been remarkably reliable - every time it hits the bottom, people say it's going to zero
- Every time it hits the top, people think the world's ending
- Current position mirrors exactly where we were in previous cycle lows
The pattern comparison with 2016-2017 is particularly striking. Look at that cycle and you'll see a very similar setup - the dollar held a low for a long time, had a fake breakdown, then eventually found support and rallied.
- Two cycles ago showed the exact same fake breakdown pattern we're seeing now
- After breaking below support, it rallied back up before finding the final cycle low
- Current cycle broke down in April while 2017 cycle broke down in August-September
- The post-breakdown rally followed by final low sequence seems to be repeating
What's nuts is how the year-to-date performance already matches what happened over the entire 2017 decline. We've achieved the same magnitude of losses but compressed into a much shorter timeframe.
- 2025 dollar losses already equal the full 2017 decline
- The speed of the move suggests we might be front-loading the weakness
- Historical precedent suggests majority of losses could already be behind us
- Pattern recognition points toward stabilization rather than continued collapse
September Rate Cuts: The Catalyst Everyone's Misreading
Here's where things get really interesting - we've got September rate cuts coming with about 70-75% probability according to CME Fed Watch, and people are treating this as bearish for the dollar. But historically, that's been dead wrong.
- Last time we got September rate cuts, the dollar rallied significantly afterward
- Weak job data is actually increasing the probability of cuts, not decreasing it
- There's even discussion of 50 basis point cuts rather than just 25
- Only about 5% chance they hold rates steady in September
The narrative around rate cuts being dollar negative is one of those things that sounds logical but doesn't match reality. When you actually look at what happens during cutting cycles, the dollar often performs better than expected.
- Rate cuts can signal policy normalization rather than weakness
- Cutting cycles often coincide with economic stabilization
- Dollar strength isn't just about interest rate differentials
- Global relative positioning matters more than absolute rate levels
Add in the tariff deadlines coming up and you've got multiple potential catalysts for dollar strength. The recent perceived weakness against trading partners has driven a lot of the bearish narrative, but policy changes could shift that dynamic quickly.
- Tariff policies could strengthen dollar through trade rebalancing
- Rate cuts might provide economic support without currency weakness
- Global monetary policy divergence could favor dollar positioning
- Technical setup aligns with fundamental catalyst timing
The timing here feels almost too perfect - technical support meeting fundamental catalysts right when sentiment has turned maximally bearish. That's often when markets make their most significant moves in the opposite direction.
RSI Indicators and the Oversold Bounce Setup
The momentum indicators are pretty much screaming oversold across multiple timeframes, which adds another layer to the reversal thesis. When you look at the weekly RSI, it's sitting at levels that have historically marked significant lows.
- Weekly RSI is at the same levels that marked previous bounce points
- Daily RSI just went oversold again, and recent oversold readings have led to rallies
- Monthly RSI has held support throughout the entire dollar uptrend
- Only time monthly RSI broke significantly below support was December 2020
What's particularly interesting about the monthly RSI is how it's maintained support throughout this entire dollar cycle. The only exception was a brief dip in December 2020, and even then it didn't stay below support for long.
- Monthly RSI support has been remarkably consistent since the uptrend began
- Current levels suggest we're at or near major support rather than breakdown territory
- Historical pattern shows RSI support holds until proven otherwise
- The technical structure remains intact despite recent weakness
The combination of oversold conditions across timeframes with channel support creates a pretty compelling setup for at least a bounce, if not a more significant reversal.
- Multiple timeframe confirmation of oversold conditions
- Technical support aligning with momentum divergences
- Pattern recognition suggesting bounce probability is high
- Risk/reward setup favors dollar longs over shorts at these levels
Even if this just turns out to be a bounce before another leg down, the immediate setup suggests dollar strength is more likely than continued weakness in the near term.
Why Dollar-Crypto Correlation Isn't What You Think
One thing that's worth clearing up is this idea that dollar strength automatically means crypto weakness and vice versa. The actual correlation data shows this relationship isn't nearly as strong as most people believe.
- 60-day correlation between dollar and Bitcoin is extremely low
- Dollar correlation with total crypto market cap is similarly weak
- Over longer timeframes, the correlation remains very low
- Perfect inverse correlation is more myth than reality
The correlation tends to be stronger during midterm years like 2014, 2018, and 2022, but during other periods you'll see plenty of times when both dollar and crypto move in the same direction.
- Midterm years show stronger negative correlation patterns
- Post-halving years often break traditional correlation assumptions
- Risk-on/risk-off dynamics override currency relationships frequently
- Asset flows driven by factors beyond simple dollar strength/weakness
This is important because talking about potential dollar strength isn't necessarily an attack on crypto or risk assets. The relationships are more complex than simple inverse correlation, and both assets can perform well simultaneously.
- Dollar strength can coincide with risk asset strength during certain periods
- Correlation coefficients show relationships aren't fixed or predictable
- Multiple factors drive asset performance beyond currency relationships
- Understanding nuance helps avoid oversimplified trading assumptions
The bigger picture here is that we might be looking at a classic sentiment extreme where everyone's betting against the dollar right at a major turning point. The technical setup, fundamental catalysts, and sentiment positioning all point toward potential reversal rather than continued collapse.
Seems like we're getting close to one of those moments where what feels obvious to everyone turns out to be completely wrong. The dollar's taken a beating, no doubt about it, but the setup for September and beyond looks more bullish than most people realize right now.
