On Wednesday (September 10), the US dollar index fluctuated narrowly around 97.8 in the European session, just away from the 98 mark. The market focused on tonight's PPI and tomorrow's CPI to determine the extent and path of the Federal Reserve's interest rate cut next week.

Fundamentals:

The highly anticipated annual benchmark revision to US employment data has been finalized. Previously, the market expected the Census Bureau to reduce the non-farm payroll increase by approximately 680,000 jobs between April 2024 and March 2025. However, the actual revision showed a decrease of 911,000 jobs, representing a -0.6% decrease, significantly larger than the average 0.2% revision over the past decade. This confirms that the labor market cooling over the past year has been stronger than previously indicated. Despite this, the US dollar has not seen significant unilateral movement. The reasons are: first, this is "rearview mirror" information, and the recent employment reports for August and the previous month have already forced the market to revise down its expectations for the interest rate path. Second, after two consecutive months of weak labor market data, the market has begun to bet on a more aggressive easing scenario. Currently, the 25 basis point rate cut in September is fully priced in, and expectations for a total of nearly three rate cuts in 2025 are also relatively solid. Some are even betting on a cumulative easing of 125-150 basis points over the next nine months.

Regarding inflation, the market is prioritizing forward-looking signals over historical revisions. Consensus estimates for PPI are for both core and gross figures to rise by 0.3% month-over-month. CPI inflation has seen a modest rebound over the past few months, reaching 2.9% (overall) and 3.1% (core) year-over-year, respectively. This trend suggests no new systemic upward pressure on prices has formed. This paves the way for a rate cut next week, while also limiting upward surprises in the extent of easing. The tussle between interest rates and inflation makes the dollar's short-term resilience to data more likely to manifest as quick-in, quick-out intraday fluctuations rather than trend reversals.

Geopolitically, recent isolated incidents (such as localized strikes in the Middle East and the drone interception in Poland) have only triggered brief spikes in risk aversion and oil prices, failing to significantly impact major exchange rates. Europe's new restrictions on Russia continue to progress, but the foreign exchange market hasn't taken them as a primary driver. Equity market sentiment is relatively positive, with strong performance in the computing and data center sectors of large tech companies reinforcing the macro narrative of a "soft landing with easing prospects." Leverage and position management tend to maintain a full allocation to risk assets, exerting mild passive pressure on the US dollar. Overall, this creates a macroeconomic environment that is "unfriendly but not catastrophic" for the US dollar: bearish employment revisions, benign inflation, and rising easing expectations. However, the real catalyst will depend on the details of upcoming price data and the Fed's communication language.

Technical aspects:

According to the daily chart, the US dollar index is currently located in a narrow range below the middle Bollinger Band and above the lower Bollinger Band: the middle Bollinger Band is 98.0563, the upper Bollinger Band is 98.6424, and the lower Bollinger Band is 97.4702. The price is hovering around 97.8, closely following the lower side of the middle Bollinger Band and then retracing back to the lower Bollinger Band. The MACD DIFF is -0.1268, the DEA is -0.0891, and the histogram is -0.0753, all below the zero axis, indicating that the bearish momentum is still there, but the amplitude is not strong and is close to the "weak mean reversion" zone. Any fundamental surprises may trigger a rapid directional change. The RSI (14) is 47.0704, just below the 50-center line, not oversold, reflecting the "neutral to weak" swing trading characteristics.



At the price level, 97.4702 represents the primary dynamic support level at the lower Bollinger Band, followed by a minor step below at 97.2409. If broken, the previous retracement low of 96.3729 will become the next level of static support. Above this, 98.0563 (the middle Bollinger Band and the intraday equilibrium point) and 98.6424 (the upper Bollinger Band) are located. Furthermore, the previous highs at 99.4229 and 100.2599 constitute medium-term resistance. The candlesticks of the past two weeks have shown small real bodies and alternating upper and lower shadows. This combination of repeated retests below the middle Bollinger Band and a weakly negative MACD indicates that a directional breakout requires external forces (data or policy). Consecutive closes above the middle Bollinger Band would establish the conditions for challenging the upper Bollinger Band and testing 98.64. If, on the contrary, a break below 97.47 and negative momentum are established, bears are likely to lead a new downward move.

Market outlook:

Short-term: The 98 level provides significant psychological and technical support, forming a "magnetic" position with the middle Bollinger band at 98.0563. If tonight's PPI and tomorrow's CPI roughly match the 0.3% month-over-month and 2.9%/3.1% year-over-year patterns, the US dollar index is likely to remain volatile within the 97.5-98.6 range. In this scenario of "no surprises in the data," the MACD is expected to move closer to zero, while the RSI will fluctuate between 45 and 55, reflecting typical consolidation. If inflation surges slightly and the Fed's communication becomes more cautious, prices could initiate a pullback from above the middle band, with 98.6424 as the first resistance level, followed by a test of the congested area at 99.4229. Conversely, if inflation softens and growth signals cool, a break below 97.4702 would open up potential for 97.2409, and then 96.3729.