The US dollar’s rebound continues to look corrective rather than a new uptrend. Commitment of Traders (COT) data shows large speculators and asset managers remain net short, with limited evidence of fresh buying. Meanwhile, EUR/USD and GBP/USD are testing key technical supports, raising the odds of near-term bounces as the greenback’s momentum stalls near resistance around 100.
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US Dollar Rebound Appears Corrective, EUR/USD and GBP/USD Eye Upside Reversal
If we stand back to view the bigger picture for the US dollar, the weekly chart shows that the current ‘rebound’ is dwarfed by the sell-off that preceded it. That said, the 12.1% decline from the January high to the June low was due a pause for breath, given it marked the dollar’s largest fall since the 2022 peak.
My base case is for inflation to continue tapering and for employment data (once it becomes available again) to soften further, allowing the Fed to maintain its easing cycle into 2026. I’m not anticipating a hard landing, but that scenario could still be enough to keep dollar rallies capped, see momentum turn lower again, and support a Wall Street recovery into at least Q1 or Q2.
I suspect we’re witnessing the wave ‘C’ of an ABC correction and its high should peter out below 100. Should this rally extend, perhaps the dollar could be headed for 102 before bearish momentum truly returns.
Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures
US Dollar Positioning (IMM Data): Weekly COT Report Analysis
While momentum for the US dollar index points higher, it has not been fully backed by market positioning in the latest Commitment of Traders (COT) report. Large speculators and managed funds remain net short, and recent weeks have actually seen them increase their gross-short exposure — not the behaviour typically seen during a genuine rebound.
Moreover, gross-long positions remain subdued. Asset managers were long by just 2k contracts, while large speculators added +1.5k contracts (12.4%) to reach 14k — still low by historical standards.
The dollar’s rise appears to be driven by short-covering as the government shutdown limits new economic data and prompts the unwinding of bearish bets. Until we see a meaningful pickup in fresh buying, USD bears may simply be waiting to reload at higher levels.
Chart analysis by Matt Simpson - data source: TradingView
US Dollar Index (DXY) Technical Analysis
The daily chart shows that the dollar’s rally has stalled around the 61.8% Fibonacci projection level. The daily RSI (2) reached overbought territory at yesterday’s close, signalling the potential for a near-term cycle high. However, with the RSI (14) trending higher alongside price and showing no bearish divergence, dips in the US dollar are likely to find buyers for now.
I’ll reassess the potential for a cycle high if the rally approaches the key resistance zone around 100.00, which aligns with the August swing high and the 100% projection level.
Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures
EUR/USD, GBP/USD Technical Analysis
We can’t really discuss the US dollar without mentioning EUR/USD, given the euro accounts for just under 60% of the USD Index weighting. It’s therefore worth noting that EUR/USD has so far held above 1.1160, though even a break beneath it could see prices find support and stage a bounce from the 100-day EMA and weekly VPOC near 1.1572. The daily RSI (2) also closed in oversold territory yesterday, hinting that a rebound could be near.
The British pound is also nearing a key support zone just above 1.3300. GBP/USD has formed two prominent swing lows in September, with price now attempting to hold above the June–July low around 1.3370. Given the potential for the US dollar’s rebound to pause, I suspect risks are tilted to the upside for both EUR/USD and GBP/USD in the near term.
Chart analysis by Matt Simpson - data source: TradingView EUR/USD, GBP/USD
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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