The USD tends to fall in December. It has good reasons for USD weakness heading into year-end. This USD weakness which expresses itself through the Dollar Index is due to taxation issues. Furthermore, it is a pattern that has repeated itself over the last 50 years and you can see the outflows in December in the above chart. The largest fall in the Dollar Index was -6.43% in December. The Dollar Index lost value 32 times out of the last 49 years.
What happens is that in December large US companies move money to daughter companies in order to save taxes. In January the money comes swiftly back into the US. This double-edged pattern is solid, and in the chart, you can see the seasonal outline over the last 25 years. Remember that seasonal patterns are technical signals which often have a fundamental background. Seasonal patterns are common across various markets: weather patterns, harvest periods, the timing of interest payments, regular fund inflows, tax payments, investor sentiment and more. Seasonality is based on historical data, but not every year is the same, so they must be used with investor discretion.
So, this seasonal trend would favour further falls in the DXY heading into year-end. With reasons to sell the USD abounding on the reflation narrative, now could be a great time to sell the Dollar Index. With price technically sliding below the key trendline going back to 2011, sellers at market have a relatively small risk marked on the chart.
Furthermore, any deeper retracements offer potential places of better value to go short in the DXY. Another way of expressing this dollar short could be via an NZDUSD or AUDUSD long.