Dollar Is Ready to Rally

The U.S. Dollar Index (DXY) rose 0.30% this week to 98.48 points, while EURUSD slipped 0.18% to 1.16200. Market positioning suggests that currency volatility may increase soon, with large investors showing renewed interest in the dollar.

The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) saw $30.3 million in net inflows last week, its largest single-week inflow in five months. This follows a March–July period of heavy outflows, during which EURUSD climbed 8.0%. Over the past four weeks, big players have been quietly accumulating long-dollar positions, a period also marked by abnormal price spikes.

The likely reversal zone for EURUSD sits between 1.17000–1.18000, just above the strong resistance band at 1.16000–1.17000, which was the base target of the last upward formation. A false breakout above 1.17000 would fit the behaviour of large players, who prefer to avoid prolonged drawdowns, making that zone ideal for a turnaround if a catalyst emerges.

Geopolitics already favours the Dollar, with the U.S. extending its trade truce with China by 90 days. This effectively removes the bullish EURUSD scenario toward 1.19500–1.20500.

Still, macroeconomic support for the dollar remains thin. July’s jobs report was weak, and President Trump has nominated Stephen Miran to replace Fed member Adriana Kugler, a move that could tilt the Fed toward rate cuts, but only if inflation shows signs of easing. Tuesday’s CPI release will be key: consensus expects 2.8% YoY headline inflation (up from 2.7%) and 3.0% YoY core (up from 2.9%). If the data disappoints. For example, if core inflation stays at 2.9%, the EURUSD could make one last push into the 1.17000–1.18000 area before the Dollar resumes strengthening.

Either way, traders should be ready for heightened volatility and sharp moves in the coming weeks.