The US Dollar Index traded just below 99.50, down 0.26%, after failing at its 200-day EMA, despite a session that included US strikes on Iranian launchers on Larak Island, oil up more than 2% and higher yields across the curve. Markets also repriced the policy outlook: the odds of a September Federal Reserve increase rose to about 60% from roughly 35% before Friday\u2019s Jackson Hole speech. Yet the move in rates was global rather than US-led, with euro-area and Japanese borrowing costs at their highest levels in years; Japan\u2019s two-year yield hit a 31-year high, while German and French two-year yields reached their best since 2024, and longer-dated euro-area yields pushed to levels unseen in more than fifteen years as crude traded through $85.00.<\/p>\n\n
Index composition reinforced the pressure: the euro is about 58% of DXY and the yen 14%, while markets price a September Bank of Japan hike near 84%. The European Central Bank meets 9\u201310 September ahead of the Fed\u2019s 16 September decision, and Japan follows on 18 September. DXY\u2019s August low near 98.50 came after Treasury long-dated buybacks expanded on 19 August; the 30-year yield reached a 19-year high in mid-August, and gold headed for its best month since January. This week\u2019s US data include ISM manufacturing at 14:00 GMT with prices paid forecast at 72 versus 71.1 prior, private payrolls at 12:15 GMT pencilled at 47K, ISM services prices paid last at 70.3, and Friday\u2019s jobs report at 12:30 GMT forecasting payrolls at 58K after a 23K contraction, unemployment at 4.1% and earnings at 0.3% MoM versus 0.1%. Technical levels: resistance sits near 99.75 at the 200-day EMA, then the 50-day EMA near 100.00 and 100.50; support is around 99.40, then 99.00 and 98.50, with Stoch RSI near 30 and invalidation on a daily close above 100.00.<\/p>\n\n
We are looking at a clear technical rejection for the US Dollar Index (DXY) as it struggles to stay above 99.50, failing right at its 200-day exponential moving average. Despite a major geopolitical flare-up in the Middle East and crude oil surging past $85 a barrel, the greenback is failing to attract safe-haven flows. This telling price action suggests we should position for further dollar weakness in the coming weeks.<\/p>\n\n
The issue is that global inflation pressures from rising energy costs are forcing all major central banks to turn hawkish at the same time. Historically, when oil spikes like it did in late 2023 when Brent crude neared $95, global bond yields rise in tandem, neutralizing the Federal Reserve’s yield advantage. With Japanese two-year bond yields recently touching 31-year highs and European yields soaring, the dollar simply cannot outpace its peers.<\/p>\n\n
We must remember that the Euro and the Yen make up over 72% of the DXY basket. Since the European Central Bank and the Bank of Japan are facing much stronger rate-hike expectations for September than the Fed, the dollar is fundamentally disadvantaged. We expect euro-area inflation data this week to cement this trend, making long euro positions highly attractive.<\/p>\n\n
Additionally, the dollar’s recent August low near 98.50 was triggered by Treasury buybacks, proving that rising yields are a sign of heavy debt supply rather than economic strength. Historically, when the US 30-year yield reached its previous multi-decade highs near 5.05% in October 2023, the dollar’s upward momentum eventually stalled under the weight of fiscal deficits. This dynamic behaves more like a credit risk, which prevents the dollar from acting as a traditional safe haven.<\/p>\n\n
Instead of buying dollars, capital is fleeing into gold, which is on track for its best monthly performance since January. During similar periods of stagflationary pressure and geopolitical tension, such as the spring of 2024 when gold surged past $2,400, precious metals consistently outperformed fiat currencies. We should look to express this flight to safety by buying gold call options rather than chasing USD upside.<\/p>\n\n
For derivative traders, we recommend selling DXY upside by buying put options targeting the August low of 98.50. Alternatively, buying out-of-the-money EUR\/USD call options ahead of the September 9 ECB meeting offers an excellent risk-to-reward ratio. Any bounce toward the declining 50-day EMA near 100.00 should be treated as a prime shorting opportunity, keeping a tight invalidation level just above that handle.<\/p>\n\n\n\n