The US Dollar Index (DXY) recovered to around 97.80 during the European session on Thursday (August 14). The dollar's short-term rebound was primarily driven by the upcoming release of US Producer Price Index (PPI) data, which often has a significant impact on the Federal Reserve's monetary policy. Traders are eagerly anticipating this data, especially given the uncertainty surrounding the Fed's interest rate policy outlook. Market attention is gradually shifting to economic data releases.



Meanwhile, the US Consumer Price Index (CPI) rose 0.2% year-on-year in July, slowing from the 0.3% increase in the previous month. This suggests that price pressures in the US have not intensified as expected. This data has reinforced market expectations of future Federal Reserve rate cuts. Combined with current market conditions, the Fed's monetary policy outlook appears to be leaning towards further easing measures.

In a recent interview, U.S. Treasury Secretary Scott Bessent suggested that the Federal Reserve's interest rate should be 1.5 to 1.75 percentage points lower than the current 4.33% in the short term. He also indicated that the Fed may implement a 50 basis point rate cut in September. Meanwhile, U.S. President Trump has publicly expressed his views on interest rates, suggesting that the Fed should lower them to around 1%, fueling market expectations of a Fed rate cut.

The PPI and CPI data, as well as their impact on the Fed's policy, will be key factors in determining the dollar's trajectory in the short term. Analysts believe that growing market expectations for a Fed rate cut, especially against the backdrop of weak economic data, are putting the dollar under greater downward pressure.

Technical aspects:

The US dollar index is currently showing some signs of recovery from a technical perspective. The Bollinger Bands indicate that the index has broken through the middle band, signaling a short-term rebound. On the chart, current support lies around 97.6130. A sustained rebound could lead to a test of the upward resistance around 97.8920. A break above this resistance could signal further gains for the dollar.



However, the RSI indicator shows a neutral sentiment, currently around 50, which indicates that the market is in a relatively balanced state, with no clear bias towards bulls or bears. If the RSI breaks above 60, it may confirm the upward trend of the US dollar.

Short-term technical analysis:
Support: 97.6130
Resistance: 97.8920, 98.1650
Breakout confirmation: If it breaks through 97.8920, the US dollar will further test 98.1650.
RSI: Currently at 50, we need to observe whether it breaks through 60 to confirm the bullish trend.

Market sentiment observation:

Market sentiment is currently cautious. Despite a rebound in the US dollar index, traders remain uncertain about the Fed's policy outlook. The CME FedWatch tool shows that market expectations for a 25 basis point rate cut in September are nearing 96%. This strong expectation of a rate cut will put downward pressure on the US dollar, especially as US Treasury yields fall. Lower US Treasury yields typically trigger capital outflows from the US market, weakening the dollar's performance.

The Fear & Greed Index remains in neutral territory, indicating relatively stable market sentiment, but this sentiment could shift dramatically with the release of data. Traders' reaction to Fed policy could lead to rapid shifts in market sentiment, influencing the dollar's trajectory. A more accommodative Fed policy could exacerbate bearish sentiment.

Market outlook:

Bullish Outlook:
If the US dollar index successfully breaks through the current upward resistance level (97.8920) and stabilizes above this area, the US dollar will have the potential to rise further. The technical support for the US dollar rebound has also been confirmed. If it continues to rise steadily after the breakthrough, the US dollar may further test the technical level of 98.1650.

Bearish Outlook:
However, if the dollar fails to break through the current resistance level and the Fed continues to adopt an accommodative monetary policy, the dollar may pull back to the support level around 97.40. In the event of further interest rate cuts by the Fed, the dollar will face greater downward pressure, especially against the backdrop of rising US debt and continued low yields. Capital outflows may intensify, pushing the US dollar index down through the support level.

Conclusion
The US dollar index is showing some signs of recovery at this point, and technically, there is room for further gains. However, market expectations of a Fed rate cut leave the dollar facing significant downside risks. Traders are focused on the upcoming PPI data and the Fed's policy direction, factors that will directly influence the dollar's future. If the data supports a strong dollar, the market will reassess the Fed's policy stance, potentially leading to further dollar gains. If the data is weak, the Fed may adopt more aggressive rate cuts, further weakening the dollar's performance.