Weekly Dollar Index Futures Outlook (DXH26)
The Dollar Index (DXY00) spent much of the past week under pressure, driven primarily by the Federal Reserve's dovish decision to cut the federal funds target range by 25 basis points (bp) and announce $40 billion in short-term bond purchases. This action caused the Dollar Index to tumble to a 6-week low and a 1.75-month low mid-week. However, the dollar found slight support toward the end of the week, rising +0.02% on Friday, bolstered by higher Treasury Note yields and hawkish pushback from several Fed members, coupled with risk-off weakness in the stock market. The stock market saw a sharp selloff on Friday, with the S&P 500 falling to a 1.5-week low and the Nasdaq 100 dropping to a 2-week low. The dollar’s late-week recovery suggests liquidity demand emerged as equity weakness intensified.
Positioning & Flows
Based on our highest-ranked primary signal, ETF flows point toward continued Dollar weakness. During the week of December 8-12, the UUP (US Dollar Index Bullish Fund) recorded a significant net outflow of −63.1M. This suggests participants actively reduced long exposure or increased short exposure to the USD via passive vehicles, supporting a near-term bearish bias. This outflow contrasts sharply with the massive inflow into equity ETFs like SPY (13.8B) and strong flows into Gold and Silver ETFs (387.4M and $337.1M respectively). Structurally, Commitment of Traders (COT) data as of November 18, 2025 (delayed), shows that Leveraged Funds held a significant net short position of 23,336 contracts, reflecting a pre-existing bearish structural conviction among large speculators.
Fundamentals
The macro focus remains centered on the Federal Reserve and inflation metrics. Although the Fed implemented a rate cut earlier in the week, several officials used public commentary late last week to temper expectations. Hawkish comments from multiple Fed presidents suggested they would have preferred to wait before cutting rates and favored keeping policy "modestly restrictive" due to persistent inflation and economic momentum. Looking ahead, markets are focused on key economic releases, including inflation data, which will be central to shaping sentiment this critical week. A surprise to the downside in inflation could reinforce dovish expectations, pressuring the Dollar further, while sticky inflation would support the hawkish Fed minority and boost the USD.
Open Interest, Volume & Volatility
Volatility gauges show the market environment shifted from risk-on earlier in the week to risk aversion by Friday, evidenced by the sharp stock market selloff. This flight to safety supported the dollar's bounce on Friday. Meanwhile, large outflows from the Treasury Bond ETF (TLT, $-378.1M) indicate investors liquidated bond holdings, pushing T-Note yields higher which initially helped the dollar stabilize against the dovish Fed narrative. The rise in yields alongside Dollar strength and stock weakness suggests a complex regime defined by rising volatility and possible funding pressure, rather than a clean directional breakout.
Seasonality
Historical tendencies for December suggest a backdrop of USD softness. This bearish seasonal bias, often attributed to year-end flows and EUR strength, aligns with the negative ETF flows observed this week. For December, this softening tendency usually materializes more strongly when the broad market is in a risk-on mode, which conflicts somewhat with the defensive stock price action seen late last week.
Technical Levels & Trade Ideas
The Mar '26 Dollar Index futures (DXH26) last traded at 98.050.
• Key Resistance: The first resistance point stands at 98.146, followed by 98.268. Breaking the 98.489 level (Fibonacci 38.2%) would signal a clear challenge to the recent downtrend.
• Key Support: Immediate support is found at the 97.921 level, with lower levels at 97.818 and 97.696. A break below the 52-week low of 95.600 would confirm a long-term structural breakdown.
Closing Outlook
Forward-Looking Bias: Neutral/Range-Bound near support, with bearish tilt.
The Dollar faces strong headwinds from negative ETF flows and bearish seasonality. However, recent hawkish Fed commentary and a risk-off rotation into liquidity on Friday (evidenced by higher T-Note yields and stock weakness) provide a crucial counter-argument for stabilization.
Base Case (3-6 days): The dollar maintains the low 98.00 region, consolidating recent Fed-induced losses. Negative flows should cap attempts to rally significantly above the 98.15 resistance level. Consolidation near the recent lows is likely as the market awaits inflation data.
Alternative Case (Bearish Continuation): If upcoming inflation data disappoints (signaling lower rates are justified) or risk-on sentiment returns to equities, the Dollar could breach 97.921 support, targeting the 97.696 level quickly.
Preferred Stance for the Week: Maintain a Neutral to Slightly Bearish posture. Ideal positioning is patience; waiting for either a failed test of the 98.15 area (for a short trade) or a false breakdown below the 97.92 support zone (for a scalp long). Risk management should prioritize the uncertainty surrounding the critical inflation releases due this week. The Dollar is trading around its Fibonacci 38.2% retracement level (98.489) from its 52-week low to high, suggesting that 98.050 is a key mid-range pivot for short-term direction.
Trade smart,
Joseph O.
SmartMoneyTrade.com
What’s Next?
Join me on X (@AlienInvestor) for daily futures trade ideas: x.com/AlienInvestor. Grab my free COT Cheat Sheet at cot.smartmoneytrade.com to master these insights. Reply with your trading goal—I’ll send a tailored tip!
