US Dollar Short-term Outlook: USD Selloff Accelerates Toward August Lows Ahead of NFP

US Dollar Index Technical Outlook: USD Short-term Trade Levels

• DXY has reversed nearly 1% from the weekly high after the late-August recovery failed at technical resistance.
• The U.S. Dollar has broken back below the 200-day moving average, keeping the late July downtrend intact.
• Price is approaching a major support confluence near the August lows, where the next reaction could provide important directional guidance.
• Friday’s Non-Farm Payrolls report represents the key catalyst into the weekly close with key inflation data on tap next Friday.
• DXY Resistance ~99.15, 99.41/49 (key), 99.80- Support 98.68/69 (key), 98.24, 97.94

The U.S. Dollar enters Friday’s employment report at a critical technical juncture after renewed selling pressure erased much of the late-August recovery. DXY is now closing in on a major support confluence near the August lows, where a break would expose deeper downside objectives and reinforce the broader decline from the July high. With Non-Farm Payrolls poised to reshape expectations for Fed policy, the weekly close could provide important confirmation on whether the bears can extend their advantage into September. Battle lines drawn on the DXY short-term technical charts.

US Dollar Index Price Chart – USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Technical Outlook: In last month’s US Dollar Short-term Outlook we noted that DXY had, “plunged more than 2.3% off the yearly high with the index trading just above pivotal support into the start of the month. From a trading standpoint, rallies would need to be limited to 100.77 IF price is heading lower on this stretch with a close below the 200-day moving average needed to fuel the next major leg of the decline.” The index registered an intraday high at 100.08 in the following days before breaking below support with DXY plunging more than 1..8% off the August highs.

The late-August recovery exhausted at resistance yesterday at the 38.2% retracement of the June decline near 99.80 with a break of the weekly opening-range today fueling a decline of nearly 1% off the weekly high. The losses take the index back below the 200-day moving average with the bears now approaching pivotal support at 99.68/69- a region define by the 2025 August high-day close and the May low. Note that a parallel (red) extending off the May low converges on this level over the next few days and the focus is on a reaction off this threshold IF reached as we head into NFPs tomorrow.

US Dollar Index Price Chart – USD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; DXY on TradingView

Notes: A closer look at USD price action shows DXY trading within the confines of a descending pitchfork extending off the July high with the decline breaking through the median line and the 200-day moving average today. Note that the 25% parallel converges on the 98.68/69 pivot zone and a break / daily close below this slope would be needed to mark resumption of the July downtrend. Subsequent support objectives rest at yearly open at 98.24, the 61.8% retracement of the January advance at 97.94, and the 2025 low-week close (LWC) & the April / May lows at 97.63/65.

Look for initial resistance at the 200DMA (currently ~99.15) backed by the 38.2% retracement of the yearly range and the January swing high at 99.41/49. This has been a key pivot zone for the US Dollar all year and rallies should be capped by this level IF the bears are to remain in control. Near-term bearish invalidation is eyed at 99.80 and a breach / close above would be needed to suggest a more significant low is in place, and a larger reversal is underway. The next major technical consideration is eyed at the August 2024 high and the 2024 low close at 100.26/35.

Bottom line: The U.S. Dollar is approaching confluent support near the August low with major even risk into the close of the week. From a trading standpoint, rallies would need to be limited to 99.49 IF price is heading lower on this stretch with a close below 98.68 needed to fuel the next leg of the decline.

Attention into the close of the week turns to tomorrow’s highly anticipated August Non-Farm Payrolls report, with consensus estimates calling for a gain of 58K jobs while the unemployment rate is expected to hold steady at 4.1%. With the Fed increasingly focused on inflation and markets still divided on the prospect of further policy tightening, a stronger employment print would likely keep the debate alive and place even greater emphasis on next week’s CPI report for guidance on the Fed’s next move. The greater near-term risk for the U.S. dollar is a weaker-than-expected jobs report, which could prompt markets to scale back tightening expectations and take some steam out of the recent advance. Stay nimble into the release and watch the weekly close for guidance. Review my latest US Dollar Weekly Forecast for a closer look at the longer-term DXY technical trade levels.

Key US Economic Data Releases

 

Written by Michael Boutros, Senior Technical Strategist

Follow Michael on X @MBForex