The dollar's decline may have reached a turning point, as technical signals suggest a short-term rebound from the bottom.

Since the beginning of this year, the US Dollar Index has almost witnessed a "free fall" decline, but some technical signals indicate that the dollar may have already hit bottom and is rebounding in the short term, with market momentum quietly shifting. According to the ICE Dollar Index (DXY), which tracks the dollar against a basket of currencies of major US trading partners, it rose 0.6% on Tuesday. Just three days ago, the index hit its lowest closing price since March 2022, with a cumulative decline of 9.7% since the beginning of the year. At first glance, the downward trend of the dollar this year seems to be continuing: each low point is lower than the previous one, and each high point of the rebound has not surpassed the previous rebound. But beneath the surface, the control of the market bears seems to be weakening, while the bulls are gathering strength. For example, last week, although the US Dollar Index hit a new low, its Relative Strength Index (RSI) rebounded from a higher low. RSI is a commonly used technical indicator to measure market momentum. The current situation is referred to by technical chart analysts as a "bullish divergence", where prices continue to decline while momentum indicators are rising. This type of divergence usually signals a trend reversal, with prices expected to rise along with momentum. It is worth noting that a pattern of "price falling + RSI rising" also appeared in September last year, leading to a strong rebound in the dollar. Like last year, this time RSI has also shown higher highs and lows after falling below the oversold line (below 30), indicating that selling pressure in the market may have been excessively released. In addition, investor sentiment is currently extremely pessimistic. MarketWatch columnist Steve Goldstein pointed out that investors' bearish sentiment towards the dollar has reached extreme levels not seen in 20 years, which often signals a rebound. At the same time, the yield on the US 10-year Treasury bond has been rising steadily over the past two months, resonating with the rebound in RSI. The correlation between the dollar and the 10-year US bond yield is usually very high. According to FactSet data, the correlation coefficient between the two over the past five years has been as high as 0.86 (1.00 representing complete synchronization, 0.00 indicating no correlation). However, this correlation has decreased to 0.42 this year. Even a partial return to the historical average level could provide momentum for a dollar rebound. From a technical perspective, the US Dollar Index is less than 0.3% away from the downtrend line connecting the highs of February 28th and May. Once this trendline is successfully broken, the next key resistance level will be the high of March, slightly below 102. If the US Dollar Index can break the closing price of May 12th, 101.79, it will break the pattern of "lower lows and lower highs", and the technical pattern will improve significantly. However, if it falls below the closing price of June 12th, 97.92, and the RSI weakens again, hopes for a rebound in the market may be dashed.