The US Dollar Index (DXY) finished the week near 98.80 after dipping into the 98.50s, sitting around its lowest level since May as US Treasury plans to at least double buybacks of longer-dated debt weighed on yields even while flash PMI surveys pointed to accelerating activity. Risk assets held firm: gold pushed to a three-month peak above $4,600, AUD/USD rose to a multi-month high near 0.7170, and WTI ended in the high-$80s near a four-week high, with Middle East tensions supporting prices. Next week’s US diary is quiet until Wednesday’s July PCE Price Index, then Friday brings Fed Chair Kevin Warsh’s first Jackson Hole keynote and the BLS preliminary annual benchmark revision to Nonfarm Payrolls at a symposium themed “Financial Innovation: Implications for Payments and Policy.”
In FX, EUR/USD closed around 1.1680 after failing again below 1.1700, with Eurozone catalysts led by Germany’s IFO and final Q2 GDP on Tuesday, ECB meeting accounts on Thursday, and flash August HICP on Friday alongside remarks from Cipollone and Schnabel. GBP/USD ended in the mid-1.3600s, while USD/JPY held just above 159.00 ahead of Friday’s Tokyo CPI, as swaps imply roughly an 80% chance of a BoJ hike on 18 September. Australia’s focus is RBA minutes on Monday, monthly CPI on Tuesday and Q2 capex on Wednesday, with headline inflation expected to ease towards 3.2% from 3.8%; Canada releases GDP on Friday.
Derivative Trading Strategies and Market Outlook
We advise derivative traders to brace for sharp moves as the US Dollar Index (DXY) hovers near its lowest level since May at 98.80. The Treasury’s recent decision to double its longer-dated bond buybacks has successfully pushed yields lower, neutralizing the impact of strong US economic growth. To position for further weakness, we suggest buying short-term put options on the dollar against major currencies.
With Gold trading at an unprecedented peak above $4,600, safe-haven momentum is incredibly strong due to simmering Middle East tensions. Historically, similar combinations of falling real yields and geopolitical risk have pushed precious metals into extended rallies, much like the historic commodity surges of the past decade. We recommend utilizing long call options on Gold to capture further upside ahead of next week’s key events.
The upcoming July PCE inflation index on Wednesday and Fed Chair Kevin Warsh’s Jackson Hole debut on Friday are the ultimate test for dollar traders. Any dovish remarks from Warsh, combined with a downward revision to US payrolls, could trigger a massive selloff in the greenback. We favor buying straddles on EUR/USD and GBP/USD to profit from the guaranteed volatility breakout.
Opportunities in G10 FX, Commodities, and Energy Markets
We also see a prime opportunity in USD/JPY near 159.00, as Japanese swap markets currently price in an 80% chance of a rate hike on September 18. If Friday’s Tokyo CPI print comes in hot, it will likely force the currency pair down toward its 200-day moving average. Traders can position for this by purchasing out-of-the-money USD/JPY put options to leverage a potential Bank of Japan hawkish surprise.
Finally, we suggest caution on the Australian Dollar near 0.7170 ahead of Tuesday’s inflation data, which is expected to cool from 3.8% to 3.2%. A softer reading will likely stall the Aussie’s recent rally, making short-dated AUD/USD put options a smart hedge. For energy markets, we prefer using bull call spreads on WTI crude to play the ongoing standoff with Iran as prices hold in the high-$80s.
