With policy expectations taking a sharp turn, can the US dollar hold the 98 mark?
2025-08-04 22:04:06
Following a sharp drop last Friday, the US dollar index continued to come under pressure during the North American trading session on Monday (August 4), trading around 98.60. This technical trend resonated with the unexpectedly weak US non-farm payrolls (NFP) data released last week, raising market expectations for a September rate cut by the Federal Reserve, putting the US dollar under multiple downward pressures.
The July non-farm payroll report, released last Friday, significantly underperformed market expectations. Job creation fell short of expectations, and the previous month's data was significantly revised downward. Meanwhile, the unemployment rate unexpectedly rose, sparking market concerns about weakening US economic growth momentum. On the policy front, despite the Federal Reserve's non-dovish stance at last week's meeting, the federal funds rate futures market quickly priced in a significantly increased probability of a September rate cut following the release of the non-farm payroll data, suggesting further room for easing this year. This sentiment directly contributed to a sharp sell-off in the US dollar index during Friday's trading session, causing it to fall sharply from a high of 100.2599, marking its largest single-day drop since April 10.
At the same time, market concerns about the structural nature of the US economy are also brewing. Weak manufacturing activity, slowing consumer resilience, and signs of a widening job market slowdown have made the US dollar less attractive amidst the current weakening support from interest rate differentials, providing support for safe-haven assets such as precious metals.
The daily chart of the US Dollar Index shows that the rebound from the low of 96.3729 recently hit 100.2599 before stalling, signaling a false breakout. The Bollinger Bands are currently showing an opening-to-contracting pattern, indicating a phase of volatility compression and the possibility of a new trend in the short term.
Regarding the MACD indicator, the red column momentum has been shrinking from its highs. While the DIFF and DEA indicators still maintain a golden cross, a subsequent decline would trigger a death cross warning, significantly weakening technical momentum. The RSI hovers around 52, still within the neutral zone, and the short-term direction remains unclear. Analysts believe that short-term support is near 98, with initial upward resistance at 99.68. A break above 99 would alleviate short-term downward pressure.
Judging from the overall structure, the short-term consolidation range of the US dollar index is 98.00-99.00. If an effective breakthrough is formed in the future, it will determine the direction choice.
Market sentiment fluctuated dramatically following the impact of the non-farm payroll data. The decline in US Treasury yields and the rapid rise in precious metals signaled a renewed defensive flow of funds. In particular, the Federal Reserve's policy outlook shifted rapidly from "maintaining higher interest rates for a longer period" to "at least one more rate cut this year," triggering a surge in profit-taking by dollar bulls, leading to a period of market volatility.
Meanwhile, market concerns about further weakening data have led some institutions to initiate medium-term short positions in the US dollar. However, some investors still adhere to the "soft landing" logic, believing that data fluctuations are short-term disturbances and insufficient to completely reverse the fundamental situation. This has led to a significant stalemate in the US dollar index in the 98-99 range, and short-term trading sentiment has become cautious.
The marginal increase in implied volatility in the options market also reflects that investors' differences on the future direction of the US dollar have intensified and risk appetite has weakened. The market is waiting for the next round of data guidance or policy statements to break through.
Short-term outlook:
From a short-term perspective, the US Dollar Index is expected to remain volatile between 98.00 and 99.00, forming a box-shaped consolidation pattern. The MACD and RSI indicators are simultaneously retracing, indicating a lack of trend momentum in the short term, with data still awaiting direction. Analysts believe that if the price breaks below 98, it will retest the previous support level of 96.82. An unexpectedly strong break above 99 and a firm hold above the psychological level of 100 would signal a continuation of the short-term rebound.
Medium- to long-term outlook:
In the medium term, continued signs of loosening in the US labor market could push policy expectations toward further easing. Considering that real interest rates have already peaked, analysts believe that if future data continues to fall short of expectations, the US dollar could revert to a medium-term bearish structure, with the 96 level becoming a key medium- to long-term support level. On a monthly basis, the US dollar index's correction from 104.70 remains unfinished. A break below 96.37 would open up room for a medium-term correction toward the 94-95 range.
Fundamentals
The July non-farm payroll report, released last Friday, significantly underperformed market expectations. Job creation fell short of expectations, and the previous month's data was significantly revised downward. Meanwhile, the unemployment rate unexpectedly rose, sparking market concerns about weakening US economic growth momentum. On the policy front, despite the Federal Reserve's non-dovish stance at last week's meeting, the federal funds rate futures market quickly priced in a significantly increased probability of a September rate cut following the release of the non-farm payroll data, suggesting further room for easing this year. This sentiment directly contributed to a sharp sell-off in the US dollar index during Friday's trading session, causing it to fall sharply from a high of 100.2599, marking its largest single-day drop since April 10.
At the same time, market concerns about the structural nature of the US economy are also brewing. Weak manufacturing activity, slowing consumer resilience, and signs of a widening job market slowdown have made the US dollar less attractive amidst the current weakening support from interest rate differentials, providing support for safe-haven assets such as precious metals.
Technical aspects:
The daily chart of the US Dollar Index shows that the rebound from the low of 96.3729 recently hit 100.2599 before stalling, signaling a false breakout. The Bollinger Bands are currently showing an opening-to-contracting pattern, indicating a phase of volatility compression and the possibility of a new trend in the short term.
Regarding the MACD indicator, the red column momentum has been shrinking from its highs. While the DIFF and DEA indicators still maintain a golden cross, a subsequent decline would trigger a death cross warning, significantly weakening technical momentum. The RSI hovers around 52, still within the neutral zone, and the short-term direction remains unclear. Analysts believe that short-term support is near 98, with initial upward resistance at 99.68. A break above 99 would alleviate short-term downward pressure.
Judging from the overall structure, the short-term consolidation range of the US dollar index is 98.00-99.00. If an effective breakthrough is formed in the future, it will determine the direction choice.
Market Sentiment Observation
Market sentiment fluctuated dramatically following the impact of the non-farm payroll data. The decline in US Treasury yields and the rapid rise in precious metals signaled a renewed defensive flow of funds. In particular, the Federal Reserve's policy outlook shifted rapidly from "maintaining higher interest rates for a longer period" to "at least one more rate cut this year," triggering a surge in profit-taking by dollar bulls, leading to a period of market volatility.
Meanwhile, market concerns about further weakening data have led some institutions to initiate medium-term short positions in the US dollar. However, some investors still adhere to the "soft landing" logic, believing that data fluctuations are short-term disturbances and insufficient to completely reverse the fundamental situation. This has led to a significant stalemate in the US dollar index in the 98-99 range, and short-term trading sentiment has become cautious.
The marginal increase in implied volatility in the options market also reflects that investors' differences on the future direction of the US dollar have intensified and risk appetite has weakened. The market is waiting for the next round of data guidance or policy statements to break through.
Market outlook:
Short-term outlook:
From a short-term perspective, the US Dollar Index is expected to remain volatile between 98.00 and 99.00, forming a box-shaped consolidation pattern. The MACD and RSI indicators are simultaneously retracing, indicating a lack of trend momentum in the short term, with data still awaiting direction. Analysts believe that if the price breaks below 98, it will retest the previous support level of 96.82. An unexpectedly strong break above 99 and a firm hold above the psychological level of 100 would signal a continuation of the short-term rebound.
Medium- to long-term outlook:
In the medium term, continued signs of loosening in the US labor market could push policy expectations toward further easing. Considering that real interest rates have already peaked, analysts believe that if future data continues to fall short of expectations, the US dollar could revert to a medium-term bearish structure, with the 96 level becoming a key medium- to long-term support level. On a monthly basis, the US dollar index's correction from 104.70 remains unfinished. A break below 96.37 would open up room for a medium-term correction toward the 94-95 range.
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