See also: InstaTrade trading indicators for USDX

The US dollar index, USDX, is consolidating near 99.20 in the first half of the European session on Friday, closing out the week in a tight range after PCE inflation data and ahead of Chair Kevin Warsh's Jackson Hole remarks. The market is paused, awaiting Fed signals that could determine the dollar's direction in the weeks ahead.

At the time of this note, USDX is trading around 99.20, consolidating after a rebound from lows near 98.60. USDX has recovered roughly half of the losses tied to the Treasury's expanded bond buyback program.

Key downward pressures on the dollar:

- Treasury intervention. The expansion of long bond buybacks put downward pressure on Treasury yields and weakened the dollar. However, the theme of dollar debasement that resurfaced last week has not gained traction, economists say.

- Softer Fed hike odds. The probability of a September FOMC rate increase is priced at roughly 33–35%. Markets still see about a 75% chance of a hike by December.

- Geopolitical risks. The standoff between the US and Iran and disruptions in the Strait of Hormuz are supporting oil prices and may limit losses in the dollar's safe-haven role.

Dollar-supporting factors:

- Sticky PCE inflation. Wednesday's data showed headline PCE at 3.7% year-on-year in July (above the 3.6% consensus) and core PCE at 3.3%. The data is consistent with at least one Fed hike priced in by year-end.

- Hawkish Fed rhetoric. Kansas City Fed President Jeff Schmid said inflation "remains stubbornly high and we need to keep pushing for a breakthrough," and Cleveland Fed President Beth Hammack reiterated that "it is time to act."

Brief technical analysis

Technically, USDX is holding above key moving averages on the 1-hour chart (the 50-period EMA near 99.10 and the 200-period EMA near 99.14). However, the index remains below the 50-, 144-, and 200-period EMAs on higher time frames, indicating the current recovery is corrective rather than trend defining.

Indicators and moving averages

- 200-period EMA (H1) is near 99.14 and acts as immediate support.

- 200-period EMA (D1) is around 99.55, serving as key long-term resistance.

- 50-period EMA (D1) sits at 99.85, adding resistance above the EMA200 (99.55).

- Daily RSI (14) is around 40–41, signalling a persistent but waning bearish impulse.

- OsMA has crossed up through the neutral line, and Stochastic is in overbought territory, together suggesting potential for a renewed upside impulse.

Key levels

Resistance: 99.55 (primary), 99.76 (H4 EMA200), 99.85 (D1 EMA50 and upper boundary of the daily down channel), 100.00 (psychological), 100.25–100.50 (next targets).

Support: 99.14 (H1 EMA200), 99.00 (psychological and near-term support), 98.50–98.60 (key support zone and three-month lows), 98.00 (lower boundary of the down channel and psychological), 97.80 (monthly EMA144).

Events to watch

- August 28 — Kevin Warsh speech at Jackson Hole: hawkish = support; dovish = pressure.

- August 28 — Preliminary NFP revision (14:00 GMT): positive revision = support for USD; negative = pressure.

Conclusion and recommendations

USDX is in a tense holding pattern, where sticky inflation and hawkish Fed rhetoric support the dollar, while Treasury buybacks and softer Fed hike odds limit upside. The decisive catalyst will be Kevin Warsh's Jackson Hole remarks on Friday. A hawkish signal could drive USDX toward 100.00, while a dovish tone could trigger a correction to 98.00–98.50. The preliminary NFP revision (14:00 GMT) may provide an additional near-term driver. Investors should remain cautious, adhere to strict risk management, and monitor Fed signals closely.

For short-term traders:

- Longs on a sustained break above 99.60, targeting 100.00–100.25, with a stop below 98.90.

- Shorts only on a break below 98.90, confirmed by fundamentals (a dovish Warsh or a material negative NFP revision), with a stop above 99.30.

- Watch Warsh and the NFP revision closely—unexpected cues can trigger sharp moves.

For medium-term investors:

- Take a wait-and-see stance until Fed signals are clear.

- A rally to 100.00–100.50 could offer opportunities to initiate shorts if fundamental pressures on the dollar persist (Treasury intervention, US economic weakening).

- Note Scotiabank's view that the recent USDX rise is a correction within a longer-standing downtrend.

Risk management:

- Expect heightened volatility ahead of Warsh and the NFP revision.

- Use strict stop loss discipline—breaches of key levels can prompt large moves.

- Monitor Fed commentary and labor market data closely.

- USDX is likely to remain in the 98.90–99.30 range until Warsh's speech, implying limited directional potential until clearer signals emerge.