A Tops Down Technical Look at the USD After Largest Quarterly Gain Since 2015

US Dollar Talking Points

• The US Dollar just posted its largest quarterly gain since 2015, with a 7.67% move in Q4 of 2024. This is also the third largest quarterly gain in the past thirty years.
• There were multiple drives as that rally last quarter stands in stark contrast to the sell-off in Q3:The currency came into last quarter with a falling wedge that led to strong bullish breakout, and the election in November gave another topside push to the USD.
• I’ll be looking at the U.S. Dollar from multiple vantage points in tomorrow’s webinar: Click here for registration information.

Indices AD

It was a strong Q4 for the U.S. Dollar, which stands in stark contrast to the weakness that the currency showed in Q3 of last year. As the Fed laid the groundwork for rate cuts in the first two months of Q3, the U.S. Dollar dropped in precipitous fashion, eventually landing around support in early-September that DXY bears had difficulty breaking through. And while the Fed did start their cutting cycle in September, there was a building case for reversal, as shown via a falling wedge formation and divergent RSI.

That falling wedge broke out in a big way as Q4 began, and then DXY got another shot-in-the-arm around the U.S. Presidential election in November, helping the Dollar to climb and finish 2024 trade at fresh two-year-highs.

But, to put last quarter’s move in scope, it was the largest quarterly gain for DXY since Q1 of 2015; and the third largest quarterly gain since Q4 of 1992.

On the below chart, I’ve marked some of the largest quarterly gains in DXY since the Plaza Accord in 1985. Last Q4 of 2024 would be the sixth largest quarterly gain since the top was set in 1985 trade.

U.S. Dollar 3-Month (Quarterly) Chart

U.S. Dollar Big Picture

The Euro came into inception in 1999 and given that the single currency is a whopping 57.6% of the DXY quote, we can reasonably say that this was the third largest quarterly outing in the U.S. Dollar since the Euro came online.

But perhaps more pressing is the backdrop with which that move showed up: The U.S. Dollar and EUR/USD were exhibiting a relatively clean range for much of the past two years. And last quarter’s breakout in DXY brought with it the prospect of continuation as we move into 2025 trade. Along the way a massive level was taken out in the U.S. Dollar at 106.61, which is the 38.2% Fibonacci retracement of the long-term move in DXY. This level held as important in 2023, as we’ll see below.

U.S. Dollar Monthly Chart

U.S. Dollar Range

That 106.61 level in DXY was a big spot in 2023 trade. At the time, the U.S. Dollar had strung together eleven consecutive weeks of gains, rallying from a fresh yearly low in July until the Fibonacci level came into play. And that level was a hard stop for bulls – holding the weekly high for six consecutive weeks, with each weekly bar showing some intersection at that price but none able to lead to a bullish continuation move. I’ve marked this area in red on the below chart.

In the most recent breakout, it did help to hold one weekly high but bulls continued to push in the aftermath of the election, eventually finding resistance at the 108.00 handle.

U.S. Dollar Weekly Price Chart

U.S. Dollar Shorter-Term

While the U.S. Dollar has shown symptoms over overbought conditions there’s still no sign yet that the bullish run is over.

This week started with a fast sell-off in DXY, driven by the prospect of Trump softening on tariffs. But that theme seemed to be refuted early in the U.S. session which helped the USD to hold support around the 108.00 level.

On a bigger picture basis, it’s difficult for me to imagine both stocks ripping-higher and the U.S. Dollar continuing its bullish trend and as I said in this quarter’s equity forecast, my expectation is for some element of mean reversion to show in the USD as stocks continue to exhibit some element of strength.

Price action, at this point, does not show that, however. And on that note, it’s the 106.61 level, the same long-term Fibonacci level noted above, that I’m looking to for some element of strategy around DXY this quarter. If sellers can take that level out, then bigger picture mean reversion will begin to look more attractive, in my opinion. But, until that’s the case, bulls still have a claim towards topside biases.

From the below daily chart, we can see that today’s low held above the prior swing low around 107.72. There’s a confluent zone of Fibonacci levels plotted from 107.18-107.32; that’s the next support zone that I’m tracking.

U.S. Dollar Daily Chart

--- written by James Stanley, Senior Strategist