The Dollar Index has been surging since October, driven primarily by three factors: 

1. Strong Economic Recovery in the U.S.: 
   The U.S. economy’s robust recovery following the COVID-19 shock has not cooled as much as anticipated. High economic activity has allowed the U.S. to remain relatively strong compared to its global counterparts. This has slowed the disinflation trend and kept the Federal Reserve more hawkish than initially expected. These dynamics are likely to persist into the first half of 2025. 

2. Weaker Economies Abroad: 
   Economic slowdowns in the Eurozone, United Kingdom, China, and Japan have further strengthened the dollar’s position. While the global economy weakens, the U.S.’s relative strength continues to give the dollar an edge. 

3. The Trump Factor: 
   The impact of expected trade tariffs became evident yesterday. News that no immediate tariff action would occur initially triggered a selloff in the Dollar Index. However, the announcement of a potential 25% tariff on Canada and Mexico by February quickly reversed that move, demonstrating the market’s sensitivity to trade policies. 

(Dolar Index Daily Chart) 

The Dollar Index had remained flat since the start of 2023 until last month. Long periods of consolidation, often referred to as “rectangles,” tend to end with a significant breakout, and if such a move occurs, it is most likely to happen in the first quarter of 2025. Yesterday, the former upper boundary at the 107-108 zone was retested and now serves as a critical support level. If this zone holds, there is a strong possibility that the bounce will be substantial enough to push the Dollar Index beyond 110. 

However, retests of rectangles are not always limited to the former upper boundary; they can sometimes dip below it. In such a scenario, the 100- or 200-day moving averages would likely act as key targets. Regardless of these short-term fluctuations, the upward momentum is undeniable and will likely persist unless significant fundamental changes occur. The Dollar Index could very well aim for a peak of 115 in the first half of 2025.