Volatile opportunities in the DXY this week

  • The US dollar index, the DXY registered its weekly first last week after four weeks of gains
  • Two major economic events occurring this week will likely set the tone for the DXY moving forward

Poorer-than-expected business activity surveys are weighing on the market outlook for the US, and with it, the USD has stalled its climb against its major trading partners. 

Fears about growing prices and the possibility of recession caused the dollar index to lose ground last week. On its way down, the DXY danced on the 106.50 level from above. While the index held its head above this water level last week, the dollar index still lost more than 1%, marking its first weekly loss after four weeks of gains. 

Since then, the DXY first dipped to 106.25, but an emphatic rejection of this level, and 106.50 has occurred and the DXY is now back above 107.00. 

107.200 is DXY’s next challenge to overcome if it wants to push into last week’s weak consolidation zone between 107.200 and 107.550. 

Two major fundamental economic events are due this week that are likely to influence whether the DXY will achieve this further upside. First is the US Federal Reserve’s Interest Rate Decision, due Wednesday 2:00pm UTC -4. Second is the release of US Quartley GDP data on Thursday 8:30am UTC -4. These two events are slightly at odds with each other in that the US Fed rate hike is supposed to cool economic activity, and the GDP data is expected to report a razor thin positive number, suggesting that economic activity is already suppressed. Market volatility leading up to and preceding these economic events would not be surprising. 

What might be surprising is how much volatility these events inject into the market. Will the DXY reach the mid-point above 108.00 or even the peak above 110.00 of its Regression Trend? For downside targets, a breakout of this trend, puts 106.50, 160.25, and 106.00 comfortably back into the picture. 

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