The USD Index (DXY) closed the fourth quarter of 2024 with a remarkable 7.67% gain, marking its largest quarterly advance since Q1 of 2015 and the third-largest increase in the past 30 years. This performance has drawn significant attention, fueled by key technical patterns and economic events that drove the dollar higher.
Key Drivers of Q4 Performance
The dollar’s strong finish in 2024 stands in stark contrast to its performance in Q3, where dovish signals from the Federal Reserve led to a steep selloff. By early September, the DXY found support, and signs of a reversal emerged. A falling wedge pattern, coupled with a divergent RSI, signaled bullish potential as Q4 began.
This technical setup coincided with the U.S. Presidential election in November, which provided further momentum for the dollar, propelling it to fresh two-year highs by year-end.
Historical Context
The scale of last quarter’s move is significant. Not only was it the largest gain since 2015, but it was also the third-largest quarterly increase for the dollar index since the Euro’s inception in 1999. On a broader historical timeline, Q4 of 2024 ranks as the sixth-largest quarterly gain for the DXY since the Plaza Accord of 1985.
Key Technical Levels: The Big Picture
One of the most critical levels reclaimed by the dollar in Q4 was 106.61, representing the 38.2% Fibonacci retracement of the DXY’s long-term movement. This level served as a significant resistance point in 2023, halting a rally after 11 consecutive weeks of gains. In Q4, the breakout above 106.61 signaled bullish continuation, with the DXY finding additional resistance at 108.00.
Shorter-Term Price Action
As the first week of 2025 unfolds, the U.S. Dollar remains in a bullish posture, although signs of overbought conditions are emerging. Early-week trading saw a temporary selloff tied to speculation about U.S. tariff policy, but the dollar quickly regained footing, holding support near the 108.00 level.
The 106.61 Fibonacci level remains a focal point for traders. A sustained break below this level could open the door for mean reversion, potentially pulling the dollar lower in the broader market context. Until then, the bullish trend remains intact, with key support levels at 107.18–107.32, a zone defined by a cluster of Fibonacci levels.
Outlook for 2025
While technical indicators suggest continued strength, the interplay between the dollar and broader market conditions, such as equity trends and Federal Reserve policy, will be critical. Traders should monitor key levels and events closely as Q1 unfolds, as any sustained movement below critical support zones could shift the outlook for the dollar.
With the USD showing resilience and reclaiming significant technical levels, the early months of 2025 will likely set the stage for its next major move.
