US Dollar Index: Fed guidance key for next leg – OCBC

OCBC strategist Christopher Wong remarks that even with a firmer US Consumer Price Index (CPI) and a near-90% likelihood of a September Federal Reserve increase, the US Dollar Index (DXY) has remained stagnant around 99.1. He points to an overextended long-Dollar position, diminishing yield moves, and improving risk sentiment as contributing factors.

The shift in focus now lies in the Federal Reserve's communication regarding potential further tightening measures beyond September and critical DXY support/resistance levels. Although stronger core CPI and a near-90% chance of a September Fed hike didn't yield sustained USD gains, the hurdle for continued upward movement appears higher; the focus now shifts to whether the Fed can guide expectations towards additional tightening beyond September.

Recent price action indicates that while positive US macro surprises are still driving yields and Fed expectations, the USD is not fully benefiting from the same momentum. This leaves the Fed as the primary focus this week. The DXY is currently at 99.1 levels, with daily momentum not showing a clear direction and the Relative Strength Index (RSI) slightly elevated.

There are likely to be 2-way risks moving forward. The DXY resistance levels are at 99.30/40 (21DMA, 38.2% Fibonacci), and 99.77 (100 DMA). Conversely, support is found at 98.60/70 (50% Fibonacci retracement of 2026 low to high), and 98 (61.8% Fibonacci).