The market has entered a wait-and-see mode. The dollar index is drifting around 98.0 after fluctuations in Treasury yields. On Wednesday, the 10-year yield rose during the day, then fell back to 4.22%, and the DXY retreated from its intraday highs.
In the early part of the day, the euro was holding near 1.160 against the dollar, and the pound at 1.35. The key events are Friday's PCE (the Fed's favorite inflation metric) and the employment data block next week.
Money markets have already priced in a high probability of a rate cut in September (approximately 89%), higher than the previous week. The dollar yield premium has narrowed, but the final verdict on the currency is still pending—a fresh PCE print could shift the balance.
The political noise in the US (attempts to remove a member of the Federal Reserve Board) has been digested by the market, which has returned to macro logic: the dollar still lives by data and rate differentials.
The Federal Reserve's message is "slowing, but not falling": the "moderately restrictive" monetary policy stance is maintained, and at some point, rate cuts will be appropriate—the only questions are the pace and timing.
In the eurozone, the German consumer climate dropped to 23.6—the lowest since April. Meanwhile, in France, a vote of confidence is expected, which the market views as a source of additional uncertainty. Britain received a mixed bag: retail sales fell for the 11th consecutive month, but producer price inflation accelerated to 1.9% y/y—a signal of sticky inflation that could cool the Bank of England's plans for further easing.
On the daily timeframe, the DXY has risen above its converging 10- and 20-day averages, locking in a short-term bullish bias. The next point of truth is the 100DMA at 98.60: a confident close above 98.60 and the local high of 98.71 would confirm momentum to 98.88, then 99.00 and 99.57.
A failure below 98.60/98.71 will return us to the "whipsaw" range of 98.71–97.58, with a focus on 98.20; lower targets are 98.05, 97.80, and 97.62. Indicators support the bulls: RSI is holding well above neutral, and 14-day momentum is in positive territory. However, this technical advance is extremely sensitive to macro surprises. A hot PCE is a chance for an upside breakout; a soft reading risks a pullback to the lower end of the range.
The trading logic before the releases is to respect levels. Buy the dips from 98.20–98.05 with a stop below 97.80 and partial profit-taking in the 98.88–99.00 zone. Sell into strength at 98.88/99.00 with a tight stop above 99.57 if momentum fizzles. After the data, trade on facts—don't argue with the numbers.
EUR/USD. The base scenario is a range with a bias towards the upper bound if PCE is soft. The pair remains within the 1.158–1.173 range, where 1.1610 is the 50% Fibonacci retracement of the July drop (1.1830–1.1400), and 1.1736 is the 78.6% level, a key barrier that saw a failed breakout last Friday.
A break of 1.1736 opens the way to 1.1800–1.1850, and higher to 1.1900. A loss of 1.158–1.161 returns the pair to a descending channel targeting 1.1550 and 1.1500. Political risks in France are limiting appetite for euro appreciation, but a soft PCE and a dovish Fed could push the pair to 1.18 in the upcoming sessions.
GBP/USD. The pound is holding near 1.35, balanced by sticky inflation and weak retail sales. Technically, bulls need to defend the 1.345–1.342 range; holding this level gives a chance to clear 1.3590 and test 1.3700 on a soft PCE.
A move below 1.342–1.340 increases the risk of a drop to 1.335–1.330. Fundamentally, the pound appears selectively strong: any signal that the Bank of England is not rushing to ease supports demand for rallies on a weak dollar, but makes every bounce vulnerable to profit-taking.
Until Friday's PCE, the market will be in risk conservation mode: these are days for discipline, not heroics. The best approach is to trade from the edges, keep tight stops, and take profits in parts. After the data, scenarios are recalculated instantly.
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