US DOLLAR RELENTLESS WITH US DOLLAR INDEX BACK AT THE HIGHS

Traders quickly lose the risk-on sentiment from early Monday with US government shutdown avoided over the weekend.

Focal point this week will be right at the end with US Nonfarm Payrolls on Friday.  

US Dollar Index’s 11th consecutive weekly gain followed by Monday continuing its trend. 

The US Dollar (USD) did not get much time to enjoy the party over its eleventh straight week of gains. Last week was a close call  as the US Dollar Index (DXY) was able to lock in its gains only in the last few trading hours. Although the US government shutdown might be solved for now, with the US Congress pushing the budget showdown to November, the can has merely been kicked down the road for roughly six weeks.

On the data front, the current stance of the US Federal Reserve got confirmed yet again with the Personal Consumption Expenditures (PCE) index. Although headline PCE saw energy adding to inflation, the Core numbers pointed to further abating inflation. The question for this Monday will be how the Purchasing Managers Indices (PMI) will behave, as a further decline into contraction might start to hurt. 

Daily digest: US Dollar faces chunky week

A packed economic calendar starts the week off with the S&P Global Manufacturing Purchase Managers Index for September at 13:45 GMT. The number should remain steady, though still in contraction, near 48.9.

At 14:00 GMT the Institute of Supply Management (ISM) is due to print its monthly numbers for September: Employment is expected to drop from 48.5 to 48.3. New Orders hit 46.8, though no forecast is available this time. The Purchasing Managers Index (PMI) is expected to stay in contraction from 47.6 to 47.7. The Prices Paid element is expected to tick up a bit from 48.4 to 48.6.

Markets are expecting to hear from Federal Reserve Chairman Jerome Powell and Patrick Harker from the Philadelphia Fed near 15:00 GMT.

The US Treasury is scheduled to auction a 3-month and 6-month bill at 15:00 and 15:30 GMT.

More Fed speakers round up this eventful Monday with John Williams from New York at 17:30 GMT and Loretta Mester from Cleveland at 23:30 GMT. 

Equities are slightly in the red in Japan with both the Topix and the Nikkei 225 dropping, less than 0.50%. European equities are ticking up, and US Futures are pointing to a firm green opening later this Monday.

The CME Group FedWatch Tool shows that markets are pricing in a 69.2 % chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. The sudden drop from the previous 81.7% comes with the print in PCE where a few elements saw inflation ticking up again. 

The benchmark 10-year US Treasury yield is lower at 4.60%, a bit in the middle of the range from last week between 4.50% and 4.68%. 

US Dollar Index technical analysis: Gearing up for volatility

The US Dollar Index booked its eleventh straight weekly gain on Friday. There isn’t much reason for champagne and festivities though as it was a very close call with the Greenback starting to wobble on its pedestal. With a chunky batch of data set to come out this week, including the US jobs report on Friday as cherry on the cake, the DXY might see its rally come to an end. 

The US Dollar Index opened around 106.21, though the overheated Relative Strength Index (RSI) is acting up again and heads back into an overbought regime. Traders that want to hit a new 52-week high need to be aware that a lot of road needs to be covered toward 114.78. Rather look for 107.19, the high of November 30, 2022,  as the next profit target on the upside. 

On the downside, the recent resistance at 105.88 should be seen as first support. Still, that barrier has just been broken to the upside, so it isn’t likely to be strong. Instead, look for 105.12 to do the trick and keep the DXY above 105.00