Last week, the US Dollar faced a downward trajectory, even amidst heightened safe-haven demands. With geopolitical events playing a critical role, and an anticipated influx of economic data, the US Dollar's journey is set to be influenced by multifaceted forces in the week to come. Though the US Dollar (USD) experienced a surge in recent months, this rally appears to be decelerating. The US Dollar Index (DXY) provides a snapshot into this scenario; its weekly chart points to a stagnant movement over the past three weeks. As per the Wyckoff Trading methodology, this stagnation in the DXY could indicate a forthcoming significant directional shift—either upward or downward.
Upcoming Economic Data to Watch
The week ahead for traders will be relatively relaxed at the onset, with a primary focus on significant data points slated for later. Thursday will be particularly pivotal, with the US Gross Domestic Product (GDP) numbers for the third quarter set to be unveiled. Moreover, Friday will see the release of the Personal Consumption Expenditures Price Index—a key inflation metric that the Federal Reserve closely monitors.
US Dollar's Current Landscape
The geopolitical situation, specifically the postponement of the Israeli ground offensive, has rendered the markets tentative. Investors are treading cautiously, factoring in the risk premiums associated with potential escalation in the region. Notably, the Chicago Fed National Activity Index for September, set for a release at 12:30 GMT on Monday, previously stood at -0.16. Additionally, the US Treasury is gearing up for a 3-month and 6-month bill auction at 15:30 GMT.
As the week commences, the global equity landscape seems muted, with Asian indexes registering a decline close to 1%, and European stocks dipping approximately 0.50%. US equity futures, too, are in a flux, seeking direction amidst a week brimming with earnings reports.
Considering interest rates, the CME Group’s FedWatch Tool suggests a whopping 98.4% likelihood that the Federal Reserve will maintain the status quo in its November assembly. Meanwhile, the benchmark 10-year US Treasury yield hovers at 4.98%, teetering close to a multi-year peak of 4.99%. The bond market sentiment remains bearish, with a clear inclination towards higher yields before making any bond purchases.
DXY Technical Outlook
October has been relatively static for the US Dollar. The geopolitical undercurrents, combined with various internal factors, have led many to speculate that the USD might experience further devaluation. A pivotal marker to watch would be the 106.00 level, which could usher in significant downslides if the US economic indicators show signs of deterioration.
For the DXY to present a bullish stance, it would need to surpass last week's peak of 106.67. An upward trajectory beyond the summer rally trend could then bolster potential gains, with 107.19 emerging as a crucial threshold. If achieved, 109.30 becomes the next notable benchmark.
Conversely, the recent support level at 105.88 has been ineffective in countering downturns. The 105.12 mark stands out as a crucial barrier to ensure the DXY remains above the 105.00 threshold. If this doesn't suffice, 104.33 is projected as the resurgence point for the US Dollar, corresponding with the 55-day Simple Moving Average as a foundational support.
EUR/USD Dynamics
As the EUR/USD hovers near the 1.06 marker, experts at Scotiabank offer insights into the pair's prospective trajectory. Subtle highs beyond 1.0640 could potentially propel the EUR towards the mid/upper 1.07 region. The EUR's recent struggle to surpass the low 1.06 zone indicates potential strength in the horizon. The overarching trend leans towards a bullish EUR, particularly given the consistent gains noted since the beginning of the month and the strong closure last week, following the bull 'hammer' pattern at the month's onset.
In essence, as global events and economic indicators continue to evolve, the currency landscape will undoubtedly reflect these shifts, necessitating astute observation and strategic decision-making by traders and investors alike.
