To The Moon

The US dollar index has shown signs of long-term support, but a decisive break below this level could open up much greater downside potential. After Donald Trump assumed office and initiated a trade war, the logic behind the dollar’s movement shifted, which has already been discussed previously.

As a result, the dollar has experienced a sustained decline over the past several months. From the perspective of current fundamentals and monetary policy comparisons, this downward trend appears to be ahead of itself and reflects expectations of future risks. Whether the dollar will continue to fall further depends not only on subsequent developments and news but also on whether the current key long-term support can hold.

The chart below shows the monthly trend channel of the dollar since the 2007/08 financial crisis. At present, the exchange rate has begun to test the lower boundary of this channel. Considering the previous break below the 100 level, the support here may only provide a rebound or correction, and a substantial reversal to the upside seems quite difficult. If the current support is repeatedly tested and eventually broken, it would mean that the 90 level—previously considered a weak price area for the dollar—could be seen again. Given that Trump still has a considerable time left in office and his policies do not seem to prioritize the dollar, the possibility of a long-term weakening of the dollar remains high.

The Euro’s Matching Trend and Key Resistance Levels

In fact, the euro, the main counterpart to the dollar index, has shown a matching trend. There is resistance at the 1.20/1.23 level, but once this is broken, the path upward will be much clearer. Notably, the chart below is for the standard euro futures contract, while the micro contract appears to have already broken out in advance. According to the euro’s price targets, a breakout could see levels of 1.36 or even 1.46. Whether these exchange rate levels truly reflect the economic conditions of Europe and the US is debatable, but market sentiment often plays a crucial role.

The Renminbi’s Situation and Outlook

For domestic investors and traders, the situation of the renminbi is naturally of particular concern. On the monthly chart, after a minor new high this year, the USD/CNY has been declining for several months, with a very obvious upper shadow on the reversal month. These signs indicate that the renminbi still has potential for appreciation in the short term, especially in the context of a long-term weak dollar, where a rising tide lifts all boats. However, whether the exchange rate will fall back to below 6.9 or even 6.8, thereby starting a new trend or range, still depends on the domestic policy stance. It should be noted that an excessively strong renminbi does not meet China’s actual needs. For now, it is more appropriate to view the renminbi’s movement as a large-range fluctuation.

Trading Strategies

Given that the dollar index is at a critical position, the risk of a rapid breakout is not high. Therefore, it may be appropriate to close short positions or attempt speculative long trades to catch a rebound, but the upside should not exceed the 100/102 range. If the index pulls back to the previous breakdown point, long-term short positions can be re-established. Should the index fall below the 96 level, there is potential for even lower levels. For the renminbi, the 7.0 level is an area to watch for repeated tests. Hedging or other risk management strategies are also viable options.

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