The US Dollar is performing well, thanks to strong economic data and new trade deals. Weekly Initial Jobless Claims and stable PMI figures have eased worries about a possible recession. The US Dollar Index (DXY) is slightly up at 97.77, though it risks ending its winning streak and is still below 98.00. President Trump made a rare visit to the Federal Reserve, urging interest rate cuts while confirming that Powell will stay on as Chair. His comments, along with the upcoming Fed meeting, keep traders alert for any changes in policy. A Reuters poll shows that economists expect the Fed to maintain its current rate next week.

Trade Deals And Economic Outlook

On the trade front, Trump reported many finalized agreements, with ongoing talks with the EU potentially wrapping up soon. Durable goods orders dropped 9.3% in June after rising in May, largely due to fewer aircraft orders. However, some sectors remain strong. The US Treasury yield is stable at 4.39% as everyone waits for the Fed’s decision. Deals have also been reached with countries like Japan and the UK, with discussions still in progress with the EU, Korea, and India. South Korea is looking to invest to secure a deal, while Trump has indicated higher tariffs for countries that do not cooperate. Inside the Fed, there is ongoing debate about the rate decision, with some members supporting a cut. The DXY has gained traction after testing the upper boundary of a falling wedge and has settled above the crucial 97.00 level. The price is likely to test resistance between 97.80 and 98.00, with bullish momentum suggested by the 14-day RSI at 47, even though further gains may face obstacles. Given the positive economic signals, including the recent Non-Farm Payrolls report that added 272,000 jobs—well above expectations—we see the US economy as strong. We recommend that derivative traders pay less attention to daily data fluctuations and focus more on the upcoming Federal Reserve meeting, as it is expected to be the primary market mover. The current stability in the Treasury yield shows that the bond market has likely accounted for a specific outcome.

Federal Reserve And Market Movements

The President’s unusual visit and call for rate cuts add a layer of political tension for the central bank. However, the CME FedWatch Tool shows over a 90% chance that the Fed will keep interest rates steady next week. This difference between political pressure and market expectations suggests potential volatility, which derivative strategies can effectively take advantage of. With mixed signals from declining durable goods orders and a robust labor market, we believe it’s wise to prepare for a significant move in either direction. We are considering buying straddles or strangles on major currency pair options, such as EUR/USD, in advance of Powell’s announcement. This strategy allows us to profit from substantial price changes, regardless of whether the Fed opts for a hawkish hold or a surprising dovish shift. Progress on trade agreements with countries like Japan and the UK offers support for the dollar, but ongoing talks with the EU may introduce challenges. Recent reports highlight major disagreements over subsidies and digital taxes in those negotiations. An unexpected update from these discussions could lead to sharp and unpredictable currency shifts. Technically, the dollar index holding above the key 97.00 level is a positive sign, but it faces strong resistance up to the 98.00 level. Historically, if the monetary authority maintains a “higher-for-longer” strategy, especially when the market hopes for cuts, the dollar tends to rise, as it did throughout much of 2023. If the central bank signals its intent to stay hawkish, we will consider buying near-term call options on dollar-tracking ETFs to take advantage of a potential breakout. Create your live VT Markets account and start trading now.

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