US Dollar: CPI holds key after jobs-driven support – OCBC

OCBC’s Christopher Wong highlights the impact of US payrolls on the US Dollar (USD) and US Dollar Index (DXY). Initially, stronger job data lifted the USD and DXY, but softer wage growth and modest Federal Reserve rate adjustments capped the gains. Wong asserts that a robust US labor market maintains the possibility of further Fed tightening, which helps to curb the downside risk of the Dollar ahead of Consumer Price Index (CPI) data.

Technical analysis indicates the DXY maintains a slight bullish trend with defined support and resistance levels. The payrolls report offers marginal support to the USD, yet insufficient to ignite a sustained rally. The robust job data underscores the resilience of the US economy, potentially keeping the likelihood of Fed tightening alive and potentially restraining USD downside.

However, with wages still contained, markets are expected to demand stronger inflation proof before substantiating a September hike with greater confidence. This partially accounts for the relatively subdued USD follow-through. Although Fed hike expectations surged after the report, briefly reaching around 65% from 55%, they have since softened to approximately 62%.

Consequently, the focus now shifts to this week's CPI, where a positive surprise could fuel renewed USD strength, whereas a subdued print may maintain a more sideways price action. As of the DXY level of 99.20, a bullish daily chart trend remains intact, with the Relative Strength Index (RSI) flat. Expectations for USD/JPY to trade in a two-way pattern are high.

Resistance levels are positioned at 99.40 (21-day Moving Average, 38.2% Fibonacci), and 99.75 (100-day Moving Average). Support levels are at 98.60/70 (50% Fibonacci retracement of the 2026 low to high), and 98 (61.8% Fibonacci).