The US Dollar could drop below last week’s low of 146.60, but it is unlikely to hit 145.80. The long-term outlook for the Dollar is negative, but it’s uncertain if it has enough strength to reach 145.80. In the last 24 hours, the US Dollar fell to 147.07, which was unexpected as many thought it would stay above 147.20. With growing momentum, a dip below 146.60 is possible, but further declines to 145.80 are not expected. Any recovery should remain below 147.65, with minor resistance around 147.35.

Short Term Trading Range

In the next one to three weeks, the Dollar is likely to trade between 147.20 and 149.20. While the outlook was previously neutral, it has now turned negative due to the recent drop to 147.07. It’s unclear if the Dollar will reach 145.80, but resistance remains strong at 147.95. The recent decline in the US Dollar is mainly due to the July 2025 Consumer Price Index report, released this week, which was cooler than economists expected. This suggests that the Federal Reserve may keep interest rates steady, which could weaken the dollar. Thus, we might see a break below the 146.60 support level soon. For those trading with derivatives, we’re looking at bear put spreads to take advantage of this expected decline towards, but not necessarily through, 146.00. This could involve buying a put option with a strike price around 147.00 and selling a put with a lower strike, perhaps around 146.00. This method limits risk while aiming for the slight downward move we expect. We need to monitor the resistance levels at 147.65 and 147.95 closely. We witnessed similar dollar weakness in late 2023 when markets began pricing in future rate cuts from the Fed. Strong US economic data, such as the upcoming retail sales report, could lead to a sharp reversal and test those upper limits.

Monetary Policy Speculation

Adding more pressure is the ongoing speculation that the Bank of Japan may be moving away from its historically loose monetary policy. Recent comments from Tokyo suggest they may accept a stronger yen to address their own domestic inflation, which has reached multi-year highs. This combined pressure from a potentially dovish Fed and a less-dovish BoJ strengthens our negative view on the dollar for the next few weeks. Implied volatility in options has increased, reflecting the market’s uncertainty about hitting the 145.80 level. Given the strong resistance at 147.95, selling out-of-the-money call options with strike prices at or above 148.50 could be a smart strategy. This could help collect premiums while benefiting from time decay and the dollar’s inability to recover. Create your live VT Markets account and start trading now.

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