Is the US dollar index ($DXY) sharply overbought? Yes, according to its monthly stochastics sitting well above 80% as January came to an end. But this hasn’t been enough to spark a move to a major (long-term) downtrend, at least not yet. January saw the $DXY post a bullish outside range, reaching a high of 97.44, its highest mark since July 2020. Similar to the euro, but on the flip side, there has been no clear long-term sell signal on this monthly chart for the $DXY meaning investors are likely still long.
The US Federal Reserve is primed to start raising interest rates, likely in March, with anywhere from 3 to 7 hikes talked about during 2022. It will be interesting to see what happens with the $DXY as the ongoing major uptrend may have priced in much of what is already expected. It’s also interesting with US inflation running between 5.5% and 7.0%, depending on the measure one uses, the US dollar index has been strengthening since January 2021. At some point, one would think, something has to give.
For now, though, the $DXY remains in a major uptrend until a clear turn signal is established.