The US Dollar Index (DXY) fell, and FX options skew showed strong demand for Dollar puts across short-, medium-, and long-dated tenors. Attention is now turning to upcoming US data and other key catalysts.
Upcoming releases include weekly ADP jobs data, the NFIB small business optimism index, and December retail sales. The retail sales control group is expected to rise 0.4% month-on-month.
DXY is expected to trade in a 96.50–97.50 range over the next few days. Moves will likely depend on labour market data and US auction results.
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The dollar is under pressure and market sentiment looks weak. This is clear in the FX options market, where demand for dollar puts remains strong across short, medium, and long maturities. In other words, many traders are either positioning for a weaker dollar or hedging against one.
This looks a lot like early 2025, when the dollar also traded in a tight range and reacted to each new data release. We appear to be back in a data-driven period, where economic surprises could quickly push the market out of its current pattern.
Recent numbers support a cautious view. January Non-Farm Payrolls came in at 175,000, slightly below expectations, pointing to a cooler labour market. Core inflation has also eased to 3.7%, which reduces the case for more aggressive policy in the near term. The next major focus is retail sales, which should show whether the US consumer is still spending.
Over the next few weeks, DXY is expected to trade in a new range of about 103.80–105.20. If volatility stays low, range-based strategies—such as selling out-of-the-money strangles on dollar-related ETFs—may work well. This can generate premium as long as the dollar does not break out sharply.
Given the bearish tone, it may make sense to tilt any range strategy slightly lower. One way is to add cheap, far out-of-the-money puts as protection in case DXY breaks below support. For now, labour market data is likely to be the main driver of whether this range holds.
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