The dollar has finally cracked. The US Dollar Index is trading sub-100 at around 99.65,, and EUR/USD — pinned to the floor of its range for weeks even as the greenback softened — has lifted off the 1.1325 June low to roughly 1.1555, now pressing the descending trend line that has capped it since early 2026.
The puzzle I flagged last month, a euro that wouldn’t rally on a weak dollar, is resolving. And Friday’s payrolls are the switch.
The Inversion, Now in Reverse
Back on July 20 I argued the oil-dollar link had flipped: crude rallies were dollar-positive, not negative, because higher oil fed the inflation-and-hike story that carried DXY to 101.7.
The mechanism hasn’t changed — the input has. Oil is now collapsing on the Strait of Hormuz framework, so the same hike channel runs backward: cheaper oil resets inflation expectations lower, September hike odds have bled from roughly 67% toward 59%, and the dollar’s embedded hike premium is draining out of the tape.
That is why oil and the dollar are falling together now, after rising together through July. This is the correlation re-normalizing: the dollar is trading its rate path again, and the rate path just got marked down.
For the euro, that removes the weight that had been holding it on the floor.
Why the Euro Was Pinned — and Why It’s Moving Now
The tension was real. EUR/USD sat at its range lows for weeks despite dollar softness because the euro carried its own drag — soft eurozone PMIs, an ECB parked at 2.25%, and lingering political risk. None of that has flipped bullish.
What changed is the dollar leg: with DXY breaking hard, the pair finally broke its inertia, climbing to ~1.1555 with RSI back above 60 and pressing the early-2026 trendline. This is a dollar move, not a euro move — which is precisely why the trigger is US payrolls, not eurozone data.
EUR/USD Four-Hour Chart, August 6, 2026
Source: TradingView
Is NFP the Switch?
With Federal Reserve Chair Kevin Warsh having stripped forward guidance, the data is the guidance — so this print maps almost one-for-one onto September hike odds, and therefore onto DXY.
The runway is already tilting soft: ADP printed just +44K for July on Wednesday against a ~70K estimate, and consensus looks for a headline near 90–95K with the unemployment rate ticking up to 4.4% from 4.3%, following June’s 57K downside surprise.
US Dollar Index (DXY) Four-Hour Chart, August 6, 2026
Source: TradingView
For the dollar the levels are clean. DXY is defending its sub-100 support; a decisive loss confirms the breakdown and hands EUR/USD the trendline. A reclaim of the 100 handle — the tell that the hike bet is back — is what snaps the euro back down.
Watch average hourly earnings as the sleeper: a soft headline with hot earnings can still bid the dollar through the inflation channel and stall the euro at the trendline.
Scenario Matrix — Nearest Catalyst: July NFP, Friday, Aug 7 (8:30 ET)
Source: Created by Zain Vawda
The Bottom Line
The dollar is trading its rate path again, and that path points down — the July inversion running in reverse, with oil and DXY sinking together. But the euro’s break is borrowed entirely from the dollar’s weakness, and Friday’s payrolls hold the pen.
Soft, and the trendline goes and 1.1622 opens up. Hot, and DXY reclaims 100 and the whole move snaps back to the range lows.
This is a dollar referendum — EUR/USD is just how it gets expressed.
