The US dollar held near a 2.5-month high on Tuesday, supported by expectations that the Federal Reserve will take a cautious approach to cutting interest rates, while a tight U.S. election race kept investors on edge.
The US dollar strength, fueled by rising Treasury yields, continued to pressure the yen, euro, and sterling. This trend has been developing over recent weeks as traders scaled back expectations for rapid U.S. rate cuts.
Some analysts suggest the release of the Beige Book on Wednesday could be the dollar’s biggest challenge this week. The previous economic summary was seen as a key factor behind the 50 basis point (bp) rate cut in September that initiated the Fed’s easing cycle.
On Monday, four Federal Reserve policymakers voiced support for further rate cuts, though they differed on how quickly or how far these cuts should go.
Markets are currently pricing in an 87% chance of a 25 bp rate cut by the Fed next month, up from 50% a month ago, when expectations for a larger 50 bp cut were equally likely, according to the CME FedWatch tool. Traders are also factoring in an additional 40 bps of easing for the remainder of the year.
The dollar index (DXY), which tracks the U.S. currency against six major rivals, was last at 103.87 after reaching 104.02 on Monday, the highest level since August 1. The index has gained more than 3% so far this month.
In addition, Eurozone PMI data on Thursday could weigh further on the euro if it highlights continued economic weakness in the region, boosting expectations of future European Central Bank (ECB) rate cuts. ECB speakers, including President Christine Lagarde, will also be closely watched after she delivered a dovish message last week.
Meanwhile, China’s yuan dipped slightly as the dollar remained firm amid rising expectations of a potential return of former President Donald Trump in next month’s U.S. election. Investors are also betting the Fed will avoid aggressive monetary easing, adding further support to the dollar.
The yuan has faced pressure as Trump’s potential return brings the possibility of higher tariffs on Chinese exports. A Trump presidency could also lead to higher U.S. inflation, further benefiting the dollar.
Technical Outlook – US Dollar
The dollar index (DXY) has maintained a robust recovery rally since September 27, appreciating by over 3% and reaching a high of 104, marking its highest level in more than two months. Yesterday, the index consolidated around 104, closing with minimal gain of 0.10%.
The technical outlook features a prominent long bullish candlestick, signaling strong buying pressure. The index is currently trading near a critical resistance at 104.10. A breakout above this level could unlock the next resistance zone at 104.25-104.43, reinforcing the bullish trend. Conversely, any corrective pullback towards the 103.65-103.55 region could present an opportunity for renewed accumulation, bolstering upward momentum.
On the downside, initial support is located at 103.20, with a break below this level potentially triggering a more pronounced retracement towards the 102.80-102.62 support zone. This would indicate a weakening of the current bullish structure.
Happy Trading!
Commodity Samachar Securities
We Decode the Language of the Markets
Also Read: Bank of Canada policy Decision in Focus today , BRICS Summit: Can It Challenge IMF’s Forex Dominance?
Recommended Read: Trader’s Guide: Could You Profit from 2024’s Silver and Gold Price Fluctuations?
Want Help On Your Trades ?
Chat with RM