The US Dollar Index (DXY) strengthened on Friday, holding firm through the first half of the European session and trading around 100.30, close to its highest level since late July. With the US Dollar on course for strong weekly gains after the previous three weeks, the move followed the Federal Reserve raising interest rates at its September meeting, the first increase since 2023. The Fed’s dot plot also pointed to one additional hike this year, while oil-driven inflation risks were cited as reinforcing the case for further tightening.
Geopolitical developments added support as tensions in the Middle East increased. Iran’s Islamic Revolutionary Guard Corps said it struck a Togo-flagged tanker attempting an illegal passage through the Strait of Hormuz, and US President Donald Trump said he was nearing a major decision on whether to resume large-scale attacks on Iran. Technically, DXY remains above the 100-day EMA and has reclaimed the 50.0% Fibonacci retracement, with resistance at 100.57, then 101.12, and the cycle high at 101.82. Support sits at 100.18, alongside the 100-day EMA at 99.69 and the 38.2% level at 99.80, with further levels at 99.32 and 98.55.
Strategy for Derivative Traders
We recommend that derivative traders position for a stronger US Dollar by buying DXY call options or entering long futures contracts over the coming weeks. The US Dollar Index has clawed its way back to the 100.30 level, signaling robust upward momentum after the Federal Reserve’s hawkish policy shift this week. With the Fed signaling at least one more rate hike this year, rate differentials are shifting back in favor of the Greenback.
To manage risk, we should place tight stop-loss orders just below the immediate support level of 100.18 or the 100-day Exponential Moving Average at 99.69. On the upside, traders should target the immediate resistance at 100.57, with secondary profit-taking targets set near 101.12. Historically, when the DXY reclaims its 50% Fibonacci retracement level during a hawkish Fed cycle, it often sparks a sustained multi-week rally toward previous cycle highs.
Hedging and Cross-Currency Opportunities
We also suggest hedging portfolios against sudden energy price spikes by purchasing call options on Brent crude oil, which has recently hovered near $85 a barrel. Rising tensions in the Strait of Hormuz and potential US military actions are keeping a high geopolitical risk premium in play. This dual threat of energy-driven inflation and safe-haven demand will continue to push capital into the US Dollar.
Traders should exploit this environment by buying put options on major G-10 and Asian currencies against the US Dollar, particularly the Euro and the Yen. This trade is highly viable as foreign central banks lag behind the Fed’s aggressive posture, reversing the narrowing yield spreads that pressured the Dollar earlier this year. We expect these widening yield differentials to act as a powerful tailwind for the Greenback through the end of autumn.
