Dollar Holds 99.42 Trendline as NFP Set to Test Fed Path

The US Dollar Index is trading at 99.76, holding above a key ascending trendline at 99.42, as markets await Friday's Nonfarm Payrolls report that could determine whether the Federal Reserve cuts rates in September.

"Decisions from the Fed would remain data-dependent," Kevin Warsh, former Federal Reserve governor, said during the week, as market participants weighed whether a soft jobs number could shift the central bank's policy trajectory for the remainder of the year.

Economists expect the US economy added approximately 95,000 jobs in July, down from 121,000 in June, with the unemployment rate projected to rise to 4.4 percent from 4.3 percent. Futures markets now price a 59 percent probability of a Fed rate cut in September, down from 67 percent earlier this week, after June JOLTS job openings data showed cooling labor demand. The Fed left its benchmark rate at 3.50 percent to 3.75 percent at its July meeting.

A stronger-than-expected payrolls print would reinforce the case for the Fed to hold rates through September, potentially pushing the DXY back toward 100.36 and 100.82. A weak report, however, would expose the 99.42 trendline to a decisive break, opening the door to 98.91 and 98.27, with implications for EUR/USD and GBP/USD positioning into the second half of August.

The DXY has been harshly rejected from 101.52 and has dropped below the psychological 100.00 zone. The index currently sits below the 50-day EMA at $100.38 while just holding above the 100-day EMA at $99.92. The RSI has fallen to 36, moving into oversold territory, indicating that downside price momentum is losing speed. A decisive break below 99.42 would expose 98.91 and 98.27, reinforcing a bearish outlook. However, if buyers defend the trendline, the DXY could stage a recovery toward 100.36 and 100.82.

EUR/USD Tests Descending Trendline at 1.1559

The euro has been the primary beneficiary of dollar weakness, with EUR/USD trading at 1.1505, comfortably above the 61.8 percent Fibonacci retracement at 1.1501. The pair is now testing a descending trendline near 1.1559 that has capped rallies since May, with the RSI at 62 confirming improving bullish momentum. A sustained break above this level would expose 1.1616 and 1.1672, while a failure would see support at 1.1482 and the critical trendline at 1.1450.

The European Central Bank left its deposit rate at 2.25 percent last month, repeating its data-dependent stance. ECB policymakers continue to stress that inflation is approaching the 2 percent target, though upside risks from geopolitical concerns remain. German industrial production and eurozone retail sales data due this week will provide the first indications of whether domestic demand is stabilizing after a subdued first half of the year.

GBP/USD Consolidates Above Key Moving Averages

Sterling is digesting last week's Bank of England decision to hold Bank Rate at 3.75 percent. GBP/USD is trading at $1.3459, holding above both the 50-day EMA at $1.3421 and the 100-day EMA at $1.3400, with the RSI near 57 pointing to steady but moderating bullish momentum. The pair faces immediate resistance at $1.3507, where a breakout would reinforce the bullish structure and expose $1.3559. On the downside, support rests at $1.3417, followed by $1.3391 and $1.3363.

Falling energy prices, supported by recent engagement between the United States, Iran, and Qatar that eased concerns about Middle East supply disruptions, have provided a tailwind for both the euro and sterling. Investors are now watching UK labor market and activity data to assess whether easing inflation is sustainable without a sharper slowdown in growth.

Friday's NFP report will determine the next directional move. If payrolls come in below the 95,000 consensus, the dollar could break decisively below 99.42, with the next support at 98.91 and 98.27. Conversely, a strong print would likely push the DXY back toward 100.36 and potentially 100.82, while pressuring EUR/USD back toward 1.1482 and GBP/USD toward 1.3417.

This article is for informational purposes only and does not constitute investment advice.