United States Dollar Index (DXY) bears eye August low around 98.50 ahead of US inflation

The US Dollar Index (DXY) slid to a nearly three-week low near 98.70-98.65 during the early European trading session on Wednesday, as sellers intensified their pressure for a third consecutive day. Traders are eagerly anticipating the release of US inflation data, including the Producer Price Index (PPI) and the Consumer Price Index (CPI), due on Thursday and Friday, respectively.

These key economic indicators will provide crucial insights into the Federal Reserve's (Fed) policy stance, thereby influencing the subsequent trajectory of the DXY. In the meantime, USD bulls are struggling to gain traction amidst the hawkish Bank of Japan (BoJ)-driven rally in the Japanese Yen (JPY). This yen strengthening comes amid heightened geopolitical tension, with the US recently attacking Iranian oil tankers in the Gulf of Oman and near Kharg Island.

Iran responded by launching over 30 missiles towards US forces in Jordan. This ongoing regional conflict adds an element of risk to the market, potentially providing some support to the US Dollar as a safe-haven currency. In technical analysis, the DXY exhibits a bearish outlook in the short term, as it has failed to surpass the 100-day Exponential Moving Average (EMA) at 99.67 and the 61.8% Fibonacci retracement level at 99.21.

These technical levels form a significant resistance band, with the EMA and the 50% retracement at 99.70 further reinforcing the upside resistance. Should the DXY break below the 78.6% Fibonacci retracement at 98.51, it could signal the continuation of the prevailing downtrend towards the recent cycle low region around 97.62.