Dollar Index Score +9 — Are We Reliving the 2022 Nightmare?
Dollar Index Score +9 — Are We Reliving the 2022 Nightmare?
The dollar index closed above 100 on Friday. Fundamentals +5, sentiment +3, technicals +1 — overall score of +9. These numbers point to one conclusion: dollar strength isn't temporary. It's structural.
The Root Cause — Inflation and Yields
Breaking down why the dollar is strong right now:
The jobs market reads roughly neutral. Non-farm payrolls and unemployment came in weak, but ADP and JOLTS were better than expected. Economic growth, however, has been decidedly strong. PMIs significantly beat expectations, retail sales held firm, and consumer confidence surprised to the upside.
Crucially, inflation is sticky. The Producer Price Index came in hot. The 2-year Treasury yield is surging. The 10-year hit its highest level since July 2025.
These three forces — strong growth, sticky inflation, surging yields — are the engine driving dollar strength.
Is the 2022 Nightmare Returning?
Zooming out to the weekly chart reveals an unsettling pattern. Today's dollar environment is starting to mirror 2022.
In 2022, there was a persistently aggressive dollar uptrend. It was one of the most violent dollar rallies we'd seen in years, inflicting enormous pain on investors as the stock market cratered. The cause was the Fed's aggressive tightening cycle, worsened by the Russia-Ukraine situation driving oil prices higher and intensifying inflation.
The parallels today are hard to ignore. Middle East crisis spiking oil. Post-COVID inflation re-accelerating. Rate cut expectations completely evaporating. If the Middle East situation drags on or escalates into a ground invasion, my honest assessment is that this could prove even more painful than 2022.
Key Currency Setups — Trading Dollar Strength
USD/JPY: Back above 160. The Bank of Japan has explicitly stated they don't want the exchange rate this high — yen weakness hurts their domestic economy. Rather than buying up here, a BOJ intervention that drops the pair to 157 would be the attractive entry. If the dollar truly goes parabolic, USD/JPY follows. This pair delivered some of my best returns in 2022.
EUR/USD: Downside momentum is building. Moving averages are pointing lower, with resistance at 1.1650 as the key level. Two short scenarios: either a rally into the range top for sells, or a support break and retest for sells. Either way, the setup is bearish.
NZD/USD: Scoring -12. An extreme bearish reading. Recent shorts produced solid returns, and if the local lows break with a 38.2% retracement bounce, that's a continuation pattern worth trading. Classic prior-support-turns-resistance structure.
USD/CAD: Had been trending lower but reversal signals are emerging. Whether it breaks the recent high is the decisive tell.
A Word on Technical Analysis
Something worth addressing directly: don't overvalue technical analysis.
Keep it simple. Obvious levels that anyone can see — recent highs, recent lows, clear support and resistance. That's enough. Gartley patterns, Elliott waves, fair value gaps — these tools aren't bad. But expecting them to deliver some hidden magic formula for pinpoint accuracy means missing how markets actually work.
99% of price movement is driven by real-world events, not people staring at charts. Iran does something in the Strait of Hormuz and the Canadian dollar reacts. Trump tweets something and the dollar dynamic shifts. The prettiest candlestick pattern is powerless against real-world variables. Technical analysis is a reference tool, not a religion.
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