The US dollar began the week firmer as markets priced in further Federal Reserve tightening. The US Dollar Index (DXY) was up 0.15% at around 100.37, while CME FedWatch put the probability of at least one additional rate rise this year at almost 88%. That repricing followed last week’s decision to lift rates by 25 basis points to a 3.75%–4.00% range and signal further action, as the Fed’s blackout period ends and Chicago Fed President Austan Goolsbee is set to speak in London.
Minneapolis Fed President Neel Kashkari reiterated that elevated inflation remains a core policy concern. His comments scored 6.2 on the FXS Speechtracker versus a 6.3 historical average, and the FXS Fed Sentiment Index slid 1.47 points to 150.61, still above the neutral 100 threshold. Elsewhere, attention turns to a UN General Assembly meeting in New York starting Monday, 21 September, involving US President Donald Trump and Gulf leaders. Technically, DXY traded at 100.35, above the 20-day EMA of 99.63, with RSI at 63.15; last week’s high sits near 100.55.
Positioning for a Stronger US Dollar
With the US Dollar Index (DXY) currently trading near 100.35, we believe derivative traders should position for continued Greenback strength in the coming weeks. Since the index has broken cleanly above its 20-day exponential moving average (EMA) of 99.63, going long on USD-backed futures is a highly viable strategy. Historically, when the DXY sustains a break above this EMA with an RSI around 63, it often rallies by another 1.2% to 1.5% before facing exhaustion.
Given the CME FedWatch tool shows an 88% chance of another rate hike, we should also look to hedge against rising yields. Derivative traders can buy put options on Treasury futures or enter payer swaps to capitalize on this hawkish momentum. These moves are supported by the Fed Sentiment Index remaining high at 150.61, which historically signals that tight monetary policy is here to stay.
Options and Volatility Strategies
With the Relative Strength Index (RSI) at 63.15, the market is gaining momentum but is not yet overbought. We recommend buying call options on the USD against the Euro and Pound, targeting a break above the recent high of 100.55. However, we must set strict stop-losses right below the 99.63 support level to mitigate risks if the trend suddenly reverses.
Lastly, the UN General Assembly starting today in New York will likely spark near-term market volatility. We can exploit this uncertainty by trading long straddles on major currency pairs to profit from sharp, sudden price movements. This allows us to capture gains from volatility regardless of whether the dollar moves up or down during these high-profile diplomatic talks.
