The 18-Year Trend is Breaking. Is This the 2026 Financial Earthquake?

Forex Market Analysis: DXY, Interest Rates, and Currency Outlook (January 2026)

Key Concepts:

• DXY (Dollar Index): A measure of the value of the US dollar relative to a basket of six major currencies.
• De-dollarization: The process of reducing global reliance on the US dollar as the primary reserve currency.
• Bear Flag: A chart pattern indicating a continuation of a downtrend.
• Inverse Head and Shoulders: A bullish reversal pattern suggesting a potential upward price movement.
• Yield (10-year Treasury): The return an investor receives on a 10-year US Treasury bond, reflecting market confidence in the US economy.
• Pivot High/Low: Significant points on a chart representing potential support and resistance levels.
• Technical Analysis: A method of evaluating investments by analyzing past market data, primarily price and volume.
• Trend Line: A line drawn on a chart connecting a series of high or low prices, indicating the direction of a trend.

I. DXY Analysis & Potential Downside

The video focuses heavily on the DXY, highlighting a period of relative stagnation since April 2025 despite ongoing discussions about de-dollarization. While a significant 10-12% drop occurred in the dollar prior to April 2025 (attributed to the announcement of Trump’s tariffs and preemptive selling by foreign countries aiming to reduce US control), the DXY has largely traded sideways since then.

However, Gareth Soloway argues that signals point towards a potential major down move in the dollar, potentially a 10% decline in 2026. This assessment is based on both long-term and short-term technical analysis. A key observation is the DXY’s relationship to an uptrend line originating from the 2008 financial crisis. The DXY has repeatedly tested this trendline, weakening it with each touch – likened to hammering at a door until it breaks. A break below this trendline (currently around 96-97, with the DXY trading at 98+) would expose the dollar to significant downside, with initial support around 89-90.

The formation of a “bear flag” pattern further reinforces this bearish outlook. This pattern, characterized by a downward move followed by consolidation (“chop chop chop”), suggests a continuation of the downtrend.

II. Interest Rates & Loss of Confidence

A crucial element of the analysis is the unexpected rise in US interest rates despite Federal Reserve rate cuts. This is explained by the fact that the Fed controls only the short end of the yield curve, while the long end (10-year, 20-year, 30-year bonds) is determined by market forces.

Soloway argues that diminishing faith in the US financial system is driving up long-term yields. He cites a significant shift in US debt ownership: ten years ago, 40% of US debt was purchased by foreign governments; now, that figure is only 15%. This reduction in foreign ownership is interpreted as a deliberate move by other countries to reduce their dependence on the US and limit US control. The increased reliance on funds and pensions as buyers is also seen as a potential risk, as these entities may be less inclined to hold US debt during a recession or market crash compared to sovereign entities.

Data Point: Foreign government ownership of US debt has decreased from 40% ten years ago to 15% currently.

III. Currency Pair Analysis: Euro, British Pound, and Yen

The analysis extends to several key currency pairs, drawing connections to the DXY’s projected weakness:

• Euro (EUR/USD): The Euro is already breaking out of a steep downtrend, suggesting strengthening against the dollar. A consolidation phase following the breakout is expected before further gains.
• British Pound (GBP/USD): Similar to the Euro, the British Pound is exhibiting a breakout pattern, indicating potential strengthening against the dollar.
• Japanese Yen (USD/JPY): Unlike the Euro and Pound, the Yen is showing weakness against the dollar. This is attributed to concerns about Japan’s own economic stability and rising interest rates driven by debt concerns. The Yen is considered a weaker currency compared to the Euro and Pound in the current environment.

IV. Technical Analysis Methodology & Probability

Soloway emphasizes the importance of technical analysis, describing it as a method for establishing probability in trading. He explains that successful traders, including institutional investors, focus on identifying patterns and key levels to increase their chances of success. He uses the analogy of “becoming the casino versus the gambler,” highlighting the importance of calculated risk and probability.

He specifically details the process of identifying and interpreting trend lines, explaining how repeated testing of a trendline weakens it, ultimately leading to a potential breakdown. He also explains the calculation of a target price for an inverse head and shoulders pattern, using the measured move technique.

Quote: “Being able to look at a chart, pinpoint key levels, understand price pattern, and time. It's why I do these videos to help educate everyone on this method because it's very logical.” – Gareth Soloway

V. Geopolitical Considerations & Venezuela

The video briefly touches on the US intervention in Venezuela, suggesting it could initially lead to a “flight to safety” into the US dollar. However, Soloway believes that such actions, perceived as destabilizing, could ultimately increase nervousness among other countries and accelerate de-dollarization trends.

VI. 10-Year Yield & Bull Flag Pattern

The 10-year Treasury yield is presented as a bullish indicator, currently forming a “bull flag” pattern. A breakout above 4.2% is anticipated, potentially reaching 4.4-4.5%. This breakout is seen as a confirmation of the loss of confidence in the US financial system and a demand for higher returns to compensate for perceived risk.

Technical Detail: The target price for the inverse head and shoulders pattern on the 10-year yield is calculated by measuring the distance from the lowest point to the neckline and projecting that distance upward from the breakout point.

Conclusion:

The analysis paints a bearish picture for the US dollar, driven by a combination of technical factors (DXY trendline breakdown, bear flag pattern), fundamental concerns (declining foreign ownership of US debt, rising interest rates), and geopolitical considerations. The Euro and British Pound are expected to strengthen against the dollar, while the Japanese Yen is likely to remain weak. The core argument is that diminishing trust in the US financial system is fueling de-dollarization trends and creating opportunities in other currencies. The emphasis on technical analysis provides a framework for identifying potential trading opportunities based on probability and risk management.