Dollar Gives Ground as Fed Hike Bets Fade, While French Risks Weigh on the Euro
The dollar has started the week on softer footing. Collapsing expectations for an October Fed rate hike mean that the market is looking elsewhere for clues about the global economy, including France. There is also a lot of data coming out of the UK this week, which could affect the British Pound.
Dollar Index: Hike Premium Unwinds
Following a three-week rise, the dollar index dropped to a two-week low last Friday. According to strategists at Deutsche Bank, the probability of a rate hike next month dropped to about 15% from 30% during the speech. CME FedWatch is now showing about an 84% chance the Fed holds at its next meeting on October 27-28, up from 49% a month ago.
Although the dollar has pulled back from the 18-month high, traders are still pricing in about a 92% chance the Fed hikes in December.
Euro: Fiscal Risk Caps the Rebound
The euro started off the week under pressure for many of the same reasons it ended last week lower. For one, investors remain concerned about the political situation in France and the rest of Europe as well as the country’s fiscal situation. Adding to these headwinds, some analysts believe the ECB will take a wait and see approach and won’t take a more hawkish tilt until December. That said, ECB executive board member Frank Elderson is due to make a speech later today.
Pound: A Data Test for the November Hike Case
Sterling on the other hand is holding up better ahead of a data deluge that will test the case for an interest rate hike in November. The hike would be the first rate hike since August 2023. Earlier in the month Bank of England Governor Bailey spoke about his frustration with the country’s elevated inflation which is well above the Bank’s target. As such he alluded to the fact that UK growth and the economy was more resilient than expected.
EUR/USD Price Forecast
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See all EUR/USD forecastsInflation data for the UK is due out on October 21st while the Autumn budget is scheduled for October 28.
US Dollar Index Technical Analysis: DXY Tests 102.18 Resistance as 101.77 Support Holds
The US Dollar Index (DXY) is currently trading at around 102.01, and what I’m focusing on is the sharp move up from the 101.77 base, which has lifted DXY above the faster moving average. Now, price is challenging the slower moving average and the lower edge of the 102.18 resistance zone. As far as the larger term outlook is concerned, there are lower highs since the 102.94 high, so until resistance is broken, this is still part of a longer-term bearish move.
The first resistance I’m looking at is 102.18. A clear break above there opens 102.60, and then the 102.94 high. 101.77 is the first support, and below that, 101.58 is the recent swing low. Further down, other support comes in at 101.34 and then 101.03.
RSI has moved up to around 58 and has crossed above its signal line at 49, so from a short-term view, the outlook is bullish. I am neutral as long as DXY is trading between 101.77 and 102.18. If 102.18 is broken to the upside, then this would strengthen the case for a bullish move and put the focus on 102.60. A break of 101.77 to the downside puts the focus on 101.58.
GBP/USD Technical Analysis: Pound Holds 1.3302 as 1.3353 Fibonacci Resistance Caps the Rally
The GBP/USD pair is currently situated at 1.3316. I am looking at how the recent advance stalled within the 1.3353-1.3404 resistance zone, which happens to be the 50% and 61.8% Fibonacci retracement levels from the move lower from 1.3569. Sellers defended this area in mid-September. The pair has since moved lower and is situated on the 100-hour SMA, which is at 1.3302, the 38.2% level.
I am looking at 1.3353 as the first resistance. A close above this level will open the 1.3404 area, and beyond that the 1.3569 level. The 1.3302 level is the first area of support, followed by the 1.3239 level, which is the 23.6% retracement, and the 1.3137 low.
EUR/USD Technical Analysis: Euro Rejected at 1.1270 as 1.1188 Support Comes Into Focus
EUR/USD is currently trading at 1.1196 on the 1-hour chart. What catches my eye on the chart is the fourth rejection of the 1.1260-1.1270 resistance area. It also lines up with the bearish trend line from the highs of late September. From there, the trend has continued lower with EUR/USD recently trading below the 20 and 50 hour moving averages. The pair recently peeled off from the 1.1222 area and looks poised to head lower to retest the 1.1152 area, or possibly lower.
The first area of potential support is at 1.1188. Once below that, the next major support area is the 1.1113 area. If the pair heads higher, 1.1240 and the bearish trend line would be resistance. The 1.1270 area would be the next major potential ceiling area.
RSI is currently around 38, and has crossed below its signal line around 48. This tells me that a move lower could occur, but it is not oversold yet. The trend is lower until proven otherwise, and the 1.1188 area would be the first major support area if the pair pulled back. A close above the 1.1270 area would negate the bearish scenario.
