Recently, I’ve been watching the US dollar trend and noticed an interesting phenomenon. The US dollar index has been oscillating at high levels since the end of last year, and although there’s a short-term rebound opportunity, the overall trend is indeed weakening. The logic behind this isn’t complicated; it mainly stems from the Federal Reserve’s interest rate cut expectations suppressing the dollar’s attractiveness.

I’ve observed that the dollar index is now at a relatively low level, having broken below the 200-day moving average, which is usually considered a bearish signal. But this doesn’t mean the dollar has no chance of rebounding; the key still depends on the Fed’s policy stance and economic data. If employment data continues to weaken and Treasury yields decline, the dollar’s appeal will naturally decrease. Conversely, if economic data unexpectedly improves and the Fed pauses rate cuts, the dollar could still appreciate.

Historically, the dollar has gone through many cycles. I remember in the early 1980s, Fed Chairman Volcker aggressively raised interest rates, pushing the federal funds rate to 20%, and at that time, the dollar index surged. Later, the dot-com bubble burst, the financial crisis, and pandemic shocks all caused significant fluctuations in the dollar. The current situation resembles a retracement from a high level, but it doesn’t mean the dollar is doomed; rather, it’s searching for a new equilibrium.

Regarding specific currency pairs, I think there are a few worth paying attention to. The euro against the dollar is currently around 1.08. If the Fed really starts cutting rates, the euro might continue to strengthen, targeting 1.09 or even 1.10. The situation with the British pound is similar; the Bank of England may cut rates more slowly than the Fed, providing support for the pound. It’s expected that this year, GBP/USD will fluctuate between 1.25 and 1.35, with a possibility of reaching 1.40.

The Chinese yuan is quite interesting. The balance between the dollar’s appreciation pressure and China’s economic policies determines the USD/CNY trend. Currently, it’s range-bound between 7.23 and 7.26, lacking short-term breakout momentum. The yen’s performance is also changing; Japan’s wage growth hit a 32-year high, which could prompt the Bank of Japan to consider raising interest rates. Therefore, USD/JPY might face downward pressure, with a technical risk of falling below 146.90. The Australian dollar remains relatively strong, supported by good economic data and the Reserve Bank’s cautious stance.

The key question now is: should I buy dollars? My view is to consider different time frames. In the short term, the dollar might rebound due to geopolitical conflicts or economic data exceeding expectations, so a swing trading approach of buying high and selling low could work. But in the medium to long term, if the Fed truly enters a rate-cut cycle, the dollar’s upward momentum will gradually weaken. At that point, shifting to other currencies or commodities might be a better choice.

The most important thing is to stay flexible, not to be scared by short-term volatility, and not to be overly bullish or bearish. The dollar’s movement is ultimately determined by economic fundamentals and policy expectations. As long as you keep an eye on these two dimensions, you can seize trading opportunities.