The US Dollar Index (DXY) moved back into positive territory on Tuesday, rising above the mid-99.00s in early European trading after retracing part of Monday’s pullback from an over two-week high. Pricing for a September rate rise firmed on the back of hawkish remarks from Fed Chair Kevin Warsh and inflation risk tied to higher energy prices, while escalating US-Iran tensions provided additional support for the safe-haven Greenback.
Technical signals were mixed: the MACD edged slightly positive and the RSI hovered around the neutral 50 level, pointing more to stabilisation than a clear uptrend. Resistance is clustered at 99.70-99.75, where the 100-day SMA coincides with the 38.2% Fibonacci retracement of the July-August decline; additional hurdles sit at 100.07 and 100.44, before higher Fibonacci caps at 100.95 and 101.61. Initial support is seen at 99.26, followed by a deeper floor near the cycle low at 98.54.
Dollar Outlook and Drivers Heading Into September
As we enter September 2026, we advise derivative traders to prepare for a potential breakout in the US Dollar Index (DXY) as it climbs back above 99.50. The index is gaining traction due to hawkish rate hike signals from Fed Chair Kevin Warsh and rising safe-haven demand from escalating US-Iran tensions. This shifting environment suggests we should lean toward bullish dollar strategies in our options portfolios over the coming weeks.
Our upward bias is supported by rising energy costs, with Brent crude oil recently pushing past $85 a barrel, which historically keeps inflation high and forces central banks to stay hawkish. Additionally, fed funds futures now show a 64% probability of a rate hike at the upcoming September meeting, up significantly from 35% a month ago. Historical data also favors this move, as the dollar has seasonally closed higher in September in eight of the last ten years, averaging a 1.2% gain during the month.
Options Strategy Recommendations for DXY
For options traders, we recommend buying near-the-money call options or executing bull call spreads, but only after the DXY secures a daily close above the heavy resistance cluster at 99.70 to 99.75. This key barrier align with the 100-day Simple Moving Average and a major Fibonacci retracement level. A clean break here will likely trigger a rapid run toward the next overhead targets at 100.07 and 100.44.
If the index fails to break this resistance in the next few days, we can pivot to selling put spreads just above the solid support floor at 99.26. We must use the cycle low near 98.54 as our absolute exit point for any bullish structures. Keeping position sizes modest will help us navigate the sharp price swings expected from geopolitical developments and upcoming energy data.
