Whispers of détente, hints of order — And the Dollar starts to lift

It may still be too early to call a firm bottom in the DXY, but there are signs of life creeping back into the greenback — not from any shift in Fed policy or economic data, but from something a little less tangible: tone.

The recent shift in narrative around U.S.-China trade tensions — particularly the suggestion that high-level talks could resume and that both sides are recognizing the unsustainability of the current tariff gridlock — has taken some heat off the dollar. While there's no hard deal on the table yet, and a full rollback of tariffs remains unlikely, even a perceived de-escalation is enough to stabilize sentiment, especially in a tape where dollar shorts were starting to overextend.

For weeks, the dollar has been trading more like a political referendum than a clean macro asset. Powell-bashing, Fed independence drama, spiralling term premiums, and institutional credibility questions had pushed DXY into dangerous territory — not just weak, but directionless. Now, with Trump walking back the Powell rhetoric and Bessent signalling that the U.S. is open to a negotiated outcome with Beijing, the dollar is finally being allowed to trade on something closer to fundamentals.

That’s not to say the backdrop is clean. U.S. economic data is softening, the Fed remains in "wait and see" mode, and ( X Japan) the rest of the world is actively cutting rates. But what’s different now is that the dollar’s narrative headwinds — the stuff that was driving safe-haven flight away from USD rather than toward it — are easing. And with positioning stretched, even a modest improvement in sentiment can trigger a mechanical bounce.

Technically, DXY had been flirting with support near the 99 level, with the RSI flashing oversold and speculative shorts starting to look crowded. Now, with EUR/USD fading off its recent highs and USD/JPY finding a bid on both sides of the carry trade, the dollar’s downside momentum has started to slow.

Let’s also not forget what’s happening outside the U.S.: the ECB just cut rates, the Boj is still in no man’s land despite inflation creeping higher, and the PBoC is intervening to keep the yuan from slipping too far, too fast. If the UST’s can start showing some strong reflixifiy to the RORO( risk on risk off) narrative and the dollar can re anchor its self to the bond market — even modestly — while removing the perception of chaos, it doesn’t take much for the dollar to reassert itself as the “least dysfunctional” option in the FX universe. In other words, if the US dollar starts acting like a haven again, we can see a bigger drawdown on EURUSD longs

It's too early to call a full DXY bottom, but the conditions are there for a short-term reprieve. If trade thaw optimism builds, and if the Fed avoids another internal credibility crisis, the path higher opens — not in a straight line, but with enough support to keep the bears second-guessing. For now, consider the bounce tactical — but don't dismiss the potential for something more durable if the narrative continues to heal.

Let’s also not forget what’s happening outside the U.S.: the ECB just cut rates, the Boj is still in no man’s land despite inflation creeping higher, and the PBoC is intervening to keep the yuan from slipping too far, too fast. If the UST’s can start showing some strong reflixifiy to the RORO narrative and the dollar cxhan re anhor its self to the bond market — even modestly — while removing the perception of chaos, it doesn’t take much for the dollar to reassert itself as the “least dysfunctional” option in the FX universe.