The US dollar index (DXY) might be repeating its pattern from the period of 2015 to 2017, signaling a potential formation of a market top in the first quarter of 2025, according to Bank of America's technical strategist Paul Ciana.
The DXY has experienced two rallies since the 2024 US election, which combined for a rise of 6.32%, breaking out from its two-year range. Ciana notes that this movement could lead to a target of approximately 114, mirroring the post-election pattern seen after the 2016 election.
The DXY's recent performance has seen it reach halfway to its target, with intraday peaks in the low 110s. Ciana pointed out that if the DXY creates a lower high around 108.50 and then declines, it could be indicative of a top forming, similar to what was observed in the first quarter of 2017.
During that time, the index peaked on January 3rd at 103.82, after rallies totaling 6.42% following the 2016 election.
“It broke out higher from its two-year range to new 13-year highs,” Ciana noted. “The measured move target estimated upside to +/- 107.”
Subsequently, it formed what is known as a head and shoulders top and declined through August 2017.
The current trajectory suggests that if the DXY does not achieve a new high in the first quarter, it may be establishing a top. “A retest of 110 may form a double top,” Ciana said.
However, the strategist also acknowledged that new highs would disrupt this pattern, potentially leading to levels of 112.50 and revisiting the highs from 2022 in the 114 range.
