U.S. Dollar IndexShort
USD revesal
Technical Analysis:
On the weekly chart, DXY experienced a bearish Failure to Continue (FTC) pattern after pushing up into bearish FVG (Fair Value Gap). This suggests potential weakness in the dollar's bullish trend.
The Relative Strength Index (RSI) on the weekly chart is indicating overbought conditions, which can be a sign of a possible reversal or correction.
The Moving Average Convergence Divergence (MACD) on the weekly chart is showing bullish momentum, with the signal line above zero. However, it's worth noting that MACD is not in overbought territory, which suggests that there may still be some upside potential.
On the daily chart, there is a bearish divergence forming in the RSI, which can be a strong indication of a potential trend reversal. Additionally, the MACD on the daily chart is about to cross below, which can signal a shift towards a bearish trend.
The sell-side liquidity is noted at 105.68, and it's possible that this level could be tested, especially during the London trading session before the release of job data.
Fundamental Analysis:
The Dollar Index (DXY) recently touched an 11-month high but subsequently fell 0.4% to 106.34. This decline can be attributed to investors' anticipation of the U.S. Labor Department's jobs report for September, which was set to be released on Friday.
Longer-dated U.S. Treasury yields have moved away from their 16-year highs, impacting the dollar's performance. The USD/JPY pair, which is sensitive to U.S. yields, traded at 148.39 per U.S. dollar, up 0.5%. It had hit its highest level since October 2022 earlier in the week.
The Japanese yen saw a sharp recovery after breaching the 150-per-dollar level, leading to speculation about possible intervention by Japanese authorities. However, Bank of Japan money market data indicated that intervention might not have occurred. Japan's Finance Minister Shunichi Suzuki did not confirm intervention but emphasized the importance of stable currency rates.
Lower U.S. Treasury yields and a drop in oil prices have provided support for the yen. However, the sustainability of this support remains uncertain.
The U.S. Labor Department reported that initial claims for state unemployment benefits increased slightly to 207,000 for the week ended Sept. 30, which was slightly lower than economists' forecasts. This data can influence the dollar's performance, especially in light of the upcoming jobs report.
In terms of interest rate expectations, financial markets see a limited chance of a Fed rate hike in November. The market has priced in the U.S. central bank's overnight lending rate staying above 5% through June 2024, with the first significant cut expected thereafter.
Conclusion:
Based on the technical and fundamental factors mentioned, the Dollar Index (DXY) appears to be at a critical juncture. The bearish technical signals, such as the bearish divergence in RSI and potential MACD crossover on the daily chart, suggest that the dollar's recent strength could be waning. However, the outcome of the U.S. Labor Department's jobs report, as well as broader economic and geopolitical developments, will likely play a crucial role in determining the dollar's future direction. Traders should closely monitor these factors and exercise caution in their trading decisions.
On the weekly chart, DXY experienced a bearish Failure to Continue (FTC) pattern after pushing up into bearish FVG (Fair Value Gap). This suggests potential weakness in the dollar's bullish trend.
The Relative Strength Index (RSI) on the weekly chart is indicating overbought conditions, which can be a sign of a possible reversal or correction.
The Moving Average Convergence Divergence (MACD) on the weekly chart is showing bullish momentum, with the signal line above zero. However, it's worth noting that MACD is not in overbought territory, which suggests that there may still be some upside potential.
On the daily chart, there is a bearish divergence forming in the RSI, which can be a strong indication of a potential trend reversal. Additionally, the MACD on the daily chart is about to cross below, which can signal a shift towards a bearish trend.
The sell-side liquidity is noted at 105.68, and it's possible that this level could be tested, especially during the London trading session before the release of job data.
Fundamental Analysis:
The Dollar Index (DXY) recently touched an 11-month high but subsequently fell 0.4% to 106.34. This decline can be attributed to investors' anticipation of the U.S. Labor Department's jobs report for September, which was set to be released on Friday.
Longer-dated U.S. Treasury yields have moved away from their 16-year highs, impacting the dollar's performance. The USD/JPY pair, which is sensitive to U.S. yields, traded at 148.39 per U.S. dollar, up 0.5%. It had hit its highest level since October 2022 earlier in the week.
The Japanese yen saw a sharp recovery after breaching the 150-per-dollar level, leading to speculation about possible intervention by Japanese authorities. However, Bank of Japan money market data indicated that intervention might not have occurred. Japan's Finance Minister Shunichi Suzuki did not confirm intervention but emphasized the importance of stable currency rates.
Lower U.S. Treasury yields and a drop in oil prices have provided support for the yen. However, the sustainability of this support remains uncertain.
The U.S. Labor Department reported that initial claims for state unemployment benefits increased slightly to 207,000 for the week ended Sept. 30, which was slightly lower than economists' forecasts. This data can influence the dollar's performance, especially in light of the upcoming jobs report.
In terms of interest rate expectations, financial markets see a limited chance of a Fed rate hike in November. The market has priced in the U.S. central bank's overnight lending rate staying above 5% through June 2024, with the first significant cut expected thereafter.
Conclusion:
Based on the technical and fundamental factors mentioned, the Dollar Index (DXY) appears to be at a critical juncture. The bearish technical signals, such as the bearish divergence in RSI and potential MACD crossover on the daily chart, suggest that the dollar's recent strength could be waning. However, the outcome of the U.S. Labor Department's jobs report, as well as broader economic and geopolitical developments, will likely play a crucial role in determining the dollar's future direction. Traders should closely monitor these factors and exercise caution in their trading decisions.
discord.gg/a7sfTVkgxc
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I’m part of a free Discord group where we help each other navigate the market and overcome trading challenges. It’s a friendly, supportive community, with members from around the globe.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
discord.gg/a7sfTVkgxc
I’m part of a free Discord group where we help each other navigate the market and overcome trading challenges. It’s a friendly, supportive community, with members from around the globe.
I’m part of a free Discord group where we help each other navigate the market and overcome trading challenges. It’s a friendly, supportive community, with members from around the globe.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.