The Federal Reserve is caught between two forces. Markets are pricing a 55% chance of a September rate hike, with prediction markets like Kalshi showing 53% odds of a 25-basis-point move. Three FOMC members already dissented in favor of hiking when rates held steady at 3.50% to 3.75% in July. July's ISM Manufacturing PMI jumped to 55.6, the strongest reading since May 2022, giving the Fed more ammunition to justify tightening.
But the dollar itself is under siege. The US and Japan announced coordinated currency intervention after USD/JPY tumbled to 40-year lows near 164, a move designed to prop up the yen and cap dollar strength. Oil prices slid roughly 5% Monday after Washington and Tehran agreed to restart talks, easing inflation pressure and removing one prop for a firmer greenback. The USD Index sits near 100.02 after bouncing hard off 101.50 last week, struggling to reclaim the psychological 100 mark.
Technical support zones tell a mixed story
The weekly chart shows DXY trapped in a wide macro range set between January's 110.176 peak and the 95.551 low from January 27. The recovery from that bottom stalled in July near 101.50, right at the 0.382 Fibonacci retracement of 101.14. Sellers pushed the index back below 100.30 to 100.60 resistance last week, with the drop halting at an ascending trendline. The weekly RSI sits near 50, offering neither bulls nor bears a momentum advantage.
The daily structure looks more bullish, but only if the index holds above 99.49 where a trendline confluence meets the June swing low. Below that, the 0.236 Fibonacci retracement at 99.00 becomes the next floor. Upside targets remain 101.14 and the May 2025 swing high at 101.98. Dollar direction ripples through other markets, as a firmer greenback has repeatedly pressured gold and Bitcoin in recent cycles.
Markets are split. Fed funds futures show hawkish pressure, but official intervention and falling oil prices are pushing the other way.
