US Dollar: CPI holds key after jobs-driven support – OCBC

OCBC’s Christopher Wong notes that stronger US payrolls initially lifted the US Dollar (USD) and US Dollar Index (DXY), but softer wage growth and only modest Fed repricing capped gains. He argues the resilient US labour market keeps the risk of further Fed tightening alive, helping to limit Dollar downside before Consumer Price Index (CPI). Technicals show DXY holding mild bullish momentum with clear resistance and support levels.

Dollar supported but capped by CPI risk

"The payrolls report is supportive of the USD at the margin, but not sufficient on its own to drive a sustained leg higher. The stronger jobs data reinforces the resilience of the US economy and should keep the risk of Fed tightening alive, which in turn may restrain USD downside. That said, with wage pressures still contained, markets are likely to require firmer inflation evidence before pricing a Sept hike with greater conviction."

"This partially helps explain the relatively muted USD follow-through. Fed hike expectations increased after the release, with the implied probability of a Sept hike briefly rising to around 65% from 55% but subsequently eased towards 62%."

"Focus therefore shifts to this week’s CPI, where an upside surprise could provide the catalyst for renewed USD strength, while a softer print would likely keep price action more two-way."

"DXY last seen at 99.20 levels. Mild bullish momentum on daily chart remains intact while RSI is flat. 2-way trades likely."

"Resistance at 99.40 (21DMA, 38.2% fibo), 99.75 (100 DMA). Support at 98.60/70 levels (50% fibo retracement of 2026 low to high), 98 (61.8% fibo)."