The US Dollar (USD) might reach the 7.1500 level before pulling back, with 7.1600 not likely in the near future. The upward momentum for the USD is increasing. If it breaks through 7.1500, the next target could be 7.1600. Yesterday, the USD hit 7.1480, close to the 7.1500 resistance. Although the market is currently overbought, there’s still room for another test of 7.1500. Support is at 7.1380 and 7.1330.

Consolidation Phase and Potential Breakout

Looking ahead one to three weeks, the USD is in a consolidation phase, testing the upper limits of a previous range. If it breaks above 7.1500, it may move towards 7.1600. On the other hand, if it drops below 7.1250, upward movement may be limited. All forward-looking statements come with risks. This information is for informational purposes and not a purchase recommendation. It’s crucial to do thorough research before making financial decisions. FXStreet and the author, who have no positions or business ties with mentioned companies, are not responsible for errors. They do not offer personalized advice and are not registered investment advisers; nothing here constitutes investment advice. The US Dollar shows strong upward momentum, with a critical test of the 7.1500 level expected soon. For traders, this indicates considering call options with strike prices at or just above 7.1500. Since short-term conditions are overbought, waiting for a small pullback to the 7.1380 support level might provide a better entry. This dollar strength arises from the Federal Reserve’s ongoing “higher-for-longer” approach to interest rates, a trend we’ve seen throughout the year. Recent US inflation data for August 2025 was at 3.1%, slightly higher than expected, suggesting that rate cuts aren’t coming soon. The attractive yield on the dollar keeps driving capital inflows.

Economic Divergence Supporting Dollar Strength

In contrast, China’s economic situation looks more challenging. For instance, China’s Caixin Manufacturing PMI for August 2025 fell to 49.8, indicating a slight contraction in the sector. This economic difference between the US and China is a key factor supporting the dollar’s rise. While the outlook seems positive, we should keep a close eye on the 7.1250 level as a critical support point for this trend. A clear break below this level may signal a loss of upward momentum, prompting traders to use it as a stop-loss for long positions. Such a move would indicate a shift to a consolidation phase instead of continued upward movement. It’s also important to remember this currency pair’s history of strong trends, as seen when it traded above 7.3000 in late 2023. If the dollar breaks above 7.1500, the move to 7.1600 could happen quickly. This historical trend suggests using derivative strategies with expirations of several weeks to fully capitalize on the potential move. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now