DXY Finds Fresh Support as Inflation Keeps Fed Tightening on the Table

Traders' Opinions

Summary:

DXY holds near 99.20 as hotter-than-expected PCE inflation strengthens the case for another Fed hike. The Dollar could remain supported above 99.00 as traders await Kevin Warsh’s Jackson Hole speech.

BUY USDX

EXP

TRADING

99.120

Entry Price

99.600

98.800

99.070 +0.010 +0.01%

0.0

Pips

Flat

98.800

Exit Price

99.120

Entry Price

99.600

The US Dollar is extending its recovery into a second session, with the Dollar Index holding around 99.20 during Thursday’s European trade as stronger US inflation data gives buyers another reason to remain active ahead of Jackson Hole.

The latest PCE report showed that price pressures are proving harder to suppress than markets had expected. Headline PCE inflation increased 0.2% in July, above forecasts for 0.1%, while the annual rate remained elevated at 3.7% instead of easing to the anticipated 3.6%. The figures have complicated the argument for the Federal Reserve to remain on hold for an extended period and revived expectations that policymakers could still deliver another rate increase before year-end.

For me, the significance of the report is less about one monthly inflation reading and more about what it means for the Fed's room to manoeuvre. Inflation is still running uncomfortably high, meaning policymakers have little incentive to signal an early end to the tightening cycle. That is helping put a floor underneath the Dollar after its recent weakness.

Attention now shifts firmly toward Fed Chair Kevin Warsh’s Jackson Hole speech on Friday. ING strategists see the address as an important event for currency markets, and that uncertainty alone could discourage traders from aggressively rebuilding bearish Dollar positions. With DXY back above the 99.00 region, investors appear reluctant to challenge the Greenback before receiving clearer guidance on the Fed’s September and year-end policy outlook.

There are, however, competing forces. Improving diplomatic developments surrounding the Strait of Hormuz have pushed crude prices lower, reducing some of the energy-driven inflation concerns that previously dominated markets. Iran and Oman have reportedly made progress on territorial-water and revenue-sharing arrangements, easing fears of prolonged disruption to one of the world's most important energy routes.

Fiscal policy is another increasingly important part of the Dollar story. The US Treasury’s proposal to expand its bond-buyback programme has attracted criticism, including from Stanley Druckenmiller, and continues to raise questions over US debt management and longer-term confidence in Treasury markets.

For now, though, the near-term balance has shifted modestly back in favour of the Dollar. Sticky inflation combined with uncertainty over Warsh’s message should keep DXY supported around the 99.00 area heading into Jackson Hole. A hawkish tone on Friday could provide the catalyst for a more meaningful extension higher.

Technical Analysis

The technical picture for the US Dollar Index remains constructive on the 1-hour chart, with DXY continuing to recover from the 98.45 region through a sequence of higher lows and higher highs. Buyers have steadily reclaimed several former resistance areas, and price is now pressing into the 99.10–99.20 zone, which represents the next important test for the recovery.

The latest move is significant because DXY has pushed back above the 99.05 area and is attempting to establish acceptance around 99.13. Rather than seeing an aggressive rejection from resistance, price has remained relatively firm, suggesting that buyers are still absorbing supply. A clean break through 99.20–99.21 would strengthen the bullish continuation case and could encourage another impulsive move higher.

Above this barrier, the chart leaves relatively limited resistance until approximately 99.35, followed by the more important 99.55–99.65 region. The projected price path on the chart points toward this upper zone, making it the broader objective if the current breakout gains traction.

On the downside, 99.05–99.10 should now act as the first area of support. A controlled pullback into this region would not materially weaken the setup and could instead provide a healthier retest before another attempt higher. Beneath there, 98.93–98.96 represents the next significant support layer, while the stronger structural floor sits around 98.73–98.76.

Only a sustained move back below 98.73 would meaningfully damage the current recovery structure and expose the 98.45 area, where the latest bullish leg originated.

Overall, the index is approaching resistance from a position of strength. Holding above 99.05 keeps the short-term bias tilted higher, while a confirmed break above 99.21 would reinforce the case for an extension toward 99.60.

TRADE RECOMMENDATION

BUY DXY

ENTRY PRICE: 99.12

STOP LOSS: 98.80

TAKE PROFIT: 99.60

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DXY Finds Fresh Support as Inflation Keeps Fed Tightening on the Table

Risk Disclosure