The US Dollar Index (DXY) extended its rise for a sixth straight session, trading near 100.30 in Asian hours on Thursday ahead of US Initial Jobless Claims. The dollar found support after the Federal Reserve raised the federal funds rate by 25 basis points to a 3.75%–4.00% target range, a move that matched expectations and marked the first increase in three years. Money markets put the probability of another hike at about 49.8% for the October meeting, based on the CME FedWatch tool.
Hawkish policy signals were echoed by quantitative gauges: the FXS Speechtracker score came in at 7.4/10 versus a 7/10 historical average, while the FXS Fed Sentiment Index jumped by 26.07 points to 151.79, well above the neutral 100 level. On technicals, DXY held above the 50- and nine-day EMAs, with the 14-day RSI at 63.58. Support levels were cited at the 50-day EMA of 99.69 and the nine-day EMA of 99.64, while 100.00 was framed as an intermediate floor. Separately, 2022 data put the dollar at over 88% of global FX turnover, averaging $6.6 trillion a day, and the Fed’s inflation target is 2%.
Strong Bullish Momentum and Expected Dollar Strength
We are seeing a strong bullish momentum for the US Dollar Index (DXY) as it holds around the 100.30 mark, driven by the Federal Reserve’s recent 25-basis-point rate hike to a range of 3.75% to 4.00%. With the central bank signaling more tightening ahead, derivative traders should prepare for sustained dollar strength in the coming weeks. Historically, first rate hikes in a new tightening cycle often spark multi-week rallies, with the DXY gaining an average of 3% to 5% in the month following the announcement.
Trading Strategies and Key Technical Levels
We recommend traders focus on buying call options on the USD against lower-yielding, risk-sensitive currencies like the Euro or the Australian Dollar. Given that money markets are pricing in a 49.8% probability of another rate hike in October, volatility is expected to rise as we approach the next policy meeting. Long call spreads on the DXY could offer an attractive risk-reward profile to capitalize on this upward momentum without overpaying for premium.
We must monitor key support levels closely, specifically the 50-day EMA at 99.69 and the nine-day EMA at 99.64, which currently act as a strong floor for the index. Since the 14-day RSI is hovering near 63.58, there is a minor risk of temporary buyer exhaustion, making short-term put options viable only as temporary hedges. For long positions, we suggest setting stop-losses just below the psychological 100.00 level to protect capital against sudden corrective dips.
