The Dollar Index closed near 101.03 after a hawkish Fed-driven rally, but it's now approaching resistance at 101.80–102.86 rather than emerging from support. Clearing that zone likely requires the 10-year Treasury yield, not the already-stretched 2-year, to extend further.
Dollar Approaches a Genuine Resistance Cluster
The Dollar Index closed last week around 101.03, having reclaimed its 55-week EMA near 99.74 and extended a two-week rally driven by rising US yields and hawkish Fed expectations. The index is no longer emerging from support. Instead, it's nearing a resistance cluster at 101.80–102.86, with 101.80 marking horizontal resistance and 102.86 representing the 50% retracement of the decline from 110.18 to 95.55.
The Fed Moved First, and the Front End Already Priced It
The Federal Reserve raised its policy rate by 25bp to 3.75–4.00% at its September 15–16 meeting in a unanimous 12-0 decision, and 16 of 18 participants placed the appropriate year-end rate above the current midpoint. According to ActionForex, Fed Governor Michael Barr reinforced the signal, saying "further policy adjustments are likely to be needed". The 2-year Treasury yield surged as high as 4.912% before easing to 4.86%, and daily RSI on the yield is already above 72. As a result, the front end looks stretched, leaving less room for it to drive another dollar leg on its own.
The 10-Year Yield Now Holds the Bigger Key
The 10-year Treasury yield reached 5.228% last week before closing around 5.17%, probing the upper boundary of its rising channel without a decisive breakout. A sustained break above that ceiling toward 5.413% would give the dollar the additional rates impulse needed to challenge 102.86. If the 10-year stalls instead while inflation pricing eases, the index could consolidate back toward the 99.7–99.9 moving-average area.
Oil's Slide Is the Clearest Counterweight
WTI crude fell almost 8% last week, from around $100.30 to $92.45, as markets weighed the possibility that diplomacy could ease disruption around the Strait of Hormuz. A sustained break below the $86.90 support level would strengthen the case that the entire rise from 67.42 has completed as a corrective move. Cheaper oil would ease inflation pressure, and that would in turn narrow the rate advantage supporting the dollar.
Next Week's Data Decides the Second Catalyst
Thursday's September ISM Manufacturing PMI, due October 1, will test whether the strength seen in the S&P Global flash survey holds across a different sample. Then September nonfarm payrolls, due October 2, will determine whether the growth and labor backdrop is strong enough to revive last week's Fed repricing. The dollar still has room to run, but whether the 10-year yield can run with it will decide the next leg.
Source: ActionForex
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