The US dollar strengthened on Thursday, with the US Dollar Index (DXY) up 0.13% near 101.60 and within reach of its yearly high of 101.80. Moves were broad against major peers, with the dollar strongest versus the Japanese yen, after a sharp intraday correction earlier in the week. The FXS Speechtracker put the latest Federal Reserve messaging at 7.1 compared with a 6.2 historical average, alongside references to inflation near 3% and guidance pointing to one more rate rise this year and another in 2027.
Policy expectations were mixed at the margin, as the FXS Fed Sentiment Index slipped 0.42 points to 143.28, still above the 100 neutral line. Attention turns to US ISM Manufacturing PMI for September at 14:00 GMT, seen at 55.0 versus 54.6 in August, after preliminary S&P Global PMI data for September came in stronger than projected. Labour-market data also remain in focus ahead of Friday’s US Nonfarm Payrolls; ADP reported 90K private jobs added in September versus 70K forecasts and 36K in August. Technically, DXY was at 101.58, above the 20-day EMA at 100.53, while the 14-day RSI stood at 73.32.
Trading Opportunities Amidst Dollar Momentum
We suggest that derivative traders look to capitalize on the current momentum of the US Dollar as it approaches its yearly high of 101.80. With the critical Nonfarm Payrolls report coming up this Friday, we should prepare for heightened volatility in major currency pairs like USD/JPY. Historically, October has been a strong month for the greenback, with the US Dollar Index rising in 60% of Octobers over the last twenty years.
Since the 14-day Relative Strength Index is currently sitting in overbought territory at 73.32, we must anticipate brief pullbacks before the upward trend continues. To trade this safely, we recommend utilizing call options to capture further upside while limiting risk in case of a sudden market reversal. Buying on dips toward the 20-day Exponential Moving Average near 100.53 remains our preferred entry point for long positions.
Inflation, Fed Policy, and Strategic Plays
The strong private payroll print of 90K and a projected ISM Manufacturing PMI of 55.0 suggest that the US economy remains highly resilient. This economic strength supports the Federal Reserve’s hawkish view that interest rates may need to stay elevated for longer to bring inflation down. We should watch the interest rate futures market closely, as traders are currently repricing the likelihood of a higher neutral rate.
For short-term strategies, we believe selling put options on the dollar against the Japanese Yen could yield steady premium income given the widening yield differentials. If the employment data exceeds expectations tomorrow, we expect the Dollar Index to easily break past its yearly high. We should remain nimble and adjust our trailing stop-losses to protect profits as this bullish trend unfolds over the coming weeks.
