US Dollar Forecast: DXY Pulls Back as Risk Rally Undermines Safe-Haven Demand

Published: February 07, 2026

Key Points

• The U.S. Dollar Index (DXY) has reversed lower as risk assets surge, indicating a potential 2-3 day pullback.
• Weak U.S. labor data has halted the dollar's breakout, reinforcing bearish sentiment.
• Increased demand for stocks, gold, silver, and bitcoin may lead to further dollar liquidation ahead of the upcoming payrolls report.

Market Overview

The U.S. Dollar finished lower against a basket of major currencies, marking a closing price reversal top. This suggests the beginning of a short-term sell-off, coinciding with rallies in risk assets such as the U.S. stock market, gold, silver, and bitcoin. The dollar had previously served as a safe-haven asset during market downturns, but its recent weakness indicates a shift in investor sentiment.

On the last trading day, the DXY settled at 97.681, down 0.265 or -0.27%.

Safe-Haven Role Fulfilled, Now Unwinding

The dollar's recent performance was influenced by uncertainty regarding the Federal Reserve's timing for rate cuts in 2026, compounded by disappointing labor market news. This uncertainty has limited the dollar's upside momentum.

Labor Market Weakness Caps Dollar’s Breakout Attempt

Recent labor market reports, including the Challenger layoffs and ADP private sector numbers, have been bearish for the dollar. The delay of the January Non-Farm Payrolls report has further contributed to the bearish outlook, indicating that sellers remain in control of the market.

Technical Analysis

The daily chart for the DXY shows a bearish setup, with the index trading below key moving averages (50-day at 98.357 and 200-day at 98.585). The recent high of 97.973 was capped by the 61.8% Fibonacci retracement level, indicating potential resistance. The next downside target is identified in the range of 96.762 to 96.476.

Outlook

Looking ahead, labor market weakness is expected to limit gains for the dollar. The upcoming non-farm payrolls report will be crucial in determining the dollar's trajectory. A renewed interest in risk assets could lead to significant liquidation of the dollar, potentially driving it down to the 96.762 level in the near term.

Author Information

James Hyerczyk is a seasoned technical analyst and educator with over 40 years of experience in market analysis and trading. He specializes in chart patterns and price movement and has authored two books on technical analysis.