DXY Analysis: Range-Bound Trading Before Fed Policy Minutes

Dollar Trapped in Holding Pattern as Critical Fed Minutes Loom

The U.S. Dollar Index is trading inside its five-day range early Tuesday as traders await the Fed’s release of its December minutes. This is the only major event this week and it may have some impact on the price action since it is expected to reveal the split inside the central bank about next year’s policy direction.

At 08:33 GMT, DXY is trading 97.993, down 0.021 or -0.02%.

Fed’s Internal Battle Over Rate Cuts Takes Center Stage

Traders are eyeing the minutes, due to be released at 19:00 GMT, after the Fed cut its benchmark rate 25 basis points earlier in the month but cautioned rates could remain on hold in the near-term. Thin holiday volume could help fuel an exaggerated response to the minutes.

The main issue for traders going into 2026 is the split between policymakers about how aggressive the central bank will be. Dollar traders have priced in two more cuts in 2026, putting pressure on the greenback since the interest rate cut on December 10.

Sharp Reversal Follows December Rate Cut

On that date, the dollar index fell sharply from an intraday high at 99.256 and decisively on the bearish side of the 50-day moving average before reaching a near-term low at 97.749 on December 24.

Greenback Suffers Worst Annual Decline in Eight Years

The dollar has been weak nearly all year, falling over 10% at one point before stabilizing in the summer. The annual loss represented the steepest decline in eight years. Fundamentally, Fed rate cut bets, shrinking interest-rate differentials and worries about the U.S. fiscal deficit and political uncertainty, drove the currency lower.

Wall Street Strategists See More Pain Ahead in 2026

Looking ahead, the outlook for 2026 is bearish with strategists at MUFG forecasting a 5% decline for the year. Their main catalysts for the selling pressure are the U.S. economy and dovish monetary policy.

Charts Signal Critical Decision Point for Dollar’s Next Move

The daily chart is aligned with that outlook despite the recent rally from late October to late November and the current consolidation.

Technically, the three-month range is 96.218 to 100.395. The retracement zone formed by that range is 98.307 to 97.814. The index is currently sitting inside this range, which could be the calm before the storm if the call for more selling pressure is correct.

On the downside, a sustained move through 97.814 could revive the sellers enough to test former bottoms at 97.462, 97.199 and 96.218.

Gains will be limited on the upside at 98.307 and 98.591. The major resistance and trend indicators are the 50-day moving average at 99.045 and the 200-day moving average at 99.117.

Fed Minutes Could Trigger Explosive Breakout—or Breakdown

The Fed minutes will be closely watched today because they could fuel a short-covering rally through 98.307 or a breakdown under 97.814. It all depends if they are perceived as hawkish or dovish, and how much trading volume is behind the move.

More Information in our Economic Calendar.