The US Dollar Index (DXY) held firm even after US and Japanese authorities confirmed joint FX intervention in USD/JPY, with Japan estimated to have sold $70-80bn over the last three days. The move came alongside weaker oil prices and comments from US President Donald Trump pointing to negotiation, rather than military action, as Washington’s preferred approach to Iran. Even so, the dollar did not weaken broadly, as markets continued to price the chance of a Federal Reserve hike in September.
Attention is turning to near-term US data, starting with a July ISM manufacturing release and then a run of labour-market indicators including JOLTS job openings, ADP and Friday’s non-farm payrolls. For NFP, consensus is around +75-80k, which would be unlikely to remove expectations of a September hike. Against that backdrop, DXY was described as sensitive to intervention headlines but with a fading impact, with support seen near 99.35/40 and scope to move back above 100 this week.
Positioning For US Dollar Resilience
We recommend that derivative traders position for a resilient US Dollar in the coming weeks, despite the massive $70-80 billion Japanese FX intervention. While joint interventions typically cool USD/JPY, the broader US Dollar Index (DXY) is holding firm and looks poised to break back above the 100 level. Traders should consider buying short-term DXY call options near the 99.35/40 support level to capture this rebound.
Rate Expectations And Market Drivers
The primary driver keeping the greenback strong is that markets are still pricing in a Federal Reserve rate hike for September. Recent CME FedWatch data shows that traders are hedging against a higher-for-longer rate environment despite cooling global growth. We believe only highly disappointing economic figures this month will prevent the Fed from tightening further.
This week’s heavy data calendar, including today’s ISM Manufacturing index and Friday’s non-farm payrolls, will decide the dollar’s immediate path. With the NFP consensus sitting at a modest expansion of 75k to 80k, the labor market remains tight enough to support the Fed’s hawkish stance. We advise using option straddles on the EUR/USD and USD/JPY to capture the sharp price swings expected around these releases.
Additionally, falling Brent crude oil prices, which currently sit near multi-month lows, are failing to drag the dollar down as they historically do. This decoupling shows that interest rate differentials are currently the dominant force in the FX market. We suggest maintaining long USD positions against the Japanese Yen and Euro as we head deeper into August.
