Charts Tell a Bullish Tale for the U.S. Dollar…But Is That All?
I want you to pay strict attention to the U.S. Dollar Index chart.
The outlook for the U.S. dollar seems rosy. Charts say the greenback could rally against major currencies in 2025. This is great if you own the U.S. dollar, but it could have dire consequences, too. So, investors beware.
U.S. Dollar Index Chart: What to Expect in the Short Term
To start with, look at the near-term U.S. Dollar Index chart. This index tracks the performance of the dollar compared to other major currencies around the world.
In the near term, the U.S. Dollar Index has broken above a key resistance level at around 107.00, starting to trend above it.
Plus, if you look at the 50-day moving average and 200-day moving averages (MAs), you’ll see the U.S. Dollar Index is trading above them. And the distance between the index and these MAs is increasing. At its core, this tells us that trends are pointing upwards.
In addition to this, the moving average convergence-divergence (MACD) momentum indicator is also trending upwards and in positive territory. This indicates that buyers are active and could take the U.S. dollar higher.
Based on the near-term chart, the U.S. Dollar Index could make a run towards its 2022 high of around 114.
Chart Courtesy of StockCharts.com
Long-Term U.S. Dollar Trend Remains Intact
Now look at the longer-term U.S. Dollar Index chart, specifically paying close attention to the 200-week MA. Since early 2022, this MA has acted as a very strong support level for the index. Each time the index has even come close to it, buyers have come in and bought.
The last time the U.S. Dollar Index found support at this MA was in late 2024. Since that time, there has been a robust rally.
Why bother paying attention to the 200-week MA?
At the most basic level, this MA tells how the long-term trend is looking. So, the U.S. dollar trading above it indicates that the long-term trend is upwards and intact. The fact that the index keeps finding support around the 200-MA suggests that buyers could be using this MA as a buying point.
Chart Courtesy of StockCharts.com
Longer-Term Chart Pattern: U.S. Dollar Could Spike 18%
Lastly, look at the U.S. Dollar Index chart that covers the longer term; it’s strongly suggesting that the dollar could be in for some massive upside.
Chart Courtesy of StockCharts.com
You see, over the past few decades, the U.S. Dollar Index chart has been forming a technical pattern called an “ascending triangle.” Essentially, this pattern forms when there’s a prevailing uptrend but also consistent resistance. Once the price breaks out above the resistance, it’s bullish, with the potential to result in solid gains.
The breakout on the U.S. Dollar Index chart happened around 2022.
Technical analysts set targets with this chart pattern by measuring the widest part of the triangle and then adding it to the breakout point.
In the chart above, the widest part of the ascending triangle is the price action between 2008 and 2017; it’s about 31.0 wide. The breakout point is around 97.0. So, according to this chart, the U.S. Dollar Index could soar as high as 128.0. That’s 18% above the current price.
U.S. Dollar Index Chart Decoded: Why Does a Rising USD Matter?
Now, if you own the dollar, great. But its equally important to understand that rising dollar is also a curse…one that could have severe consequences across the board. In fact, it wouldn’t be wrong to say that the currency could hurt portfolios.
For instance, the higher the U.S. dollar goes, the more stress will build up in the global economy.
How so?
Consider this: according to the Bank of International Settlements (BIS), there’s roughly $13.0 trillion in U.S.-denominated debt outside of the U.S. that’s owed by non-bank borrowers. (Source: “Total credit to non-bank borrowers by currency of denomination: US Dollar,” BIS, last accessed January 8, 2025.)
Guess what happens to these borrowers once the dollar rises?
The payments they make on their debt increase, which could result in loan defaults. Ultimately, this ripple effect could show up at banks and eventually snowball into something globally. This sort of thing has happened before.
S&P 500 Companies Could Be Impacted by Soaring USD
But it doesn’t just stop there.
Companies traded on the stock market do business outside of the U.S. In the second quarter of 2024, 103 companies on the S&P 500 reported that they generated $596.68 billion in revenue for the quarter from sources outside of the U.S. Overall, 28.3% of the sales came from outside of the U.S. (Source: “International revenues dip for group of S&P 500 companies in Q2 2024,” S&P Global, October 28, 2024.)
As the dollar rises, companies that earn revenue outside of the U.S. might find themselves with a problem. A rising USD could mean lower sales amount for them, and it hurts their profitability.
Will their stock prices have to adjust?
Likely.
Dear reader, right now, the U.S. dollar is strong, and the outlook is rosy. Don’t take it lightly. The higher the currency goes, the greater the chances of it triggering a crisis outside of the U.S. and eventually showing up on our doorsteps.
If a problem occurs within the eurozone’s financial system, for example, it won’t remain there for long. The financial system here in the U.S. could be impacted quite rapidly, and we could experience some sort of exodus from assets.
Time will tell us more, but I’ll reiterate what I said earlier: be very careful.