Will ongoing risk-on theme keep dampening the US dollar further?Macro theme:
- On Tue, PBoC surprised investors with a new set of support measures that positively impact risky assets. This unexpected move has injected a fresh wave of optimism into the markets.
-In contrast, the latest data from the US revealed a surprising decline in consumer confidence, which fell to 98.7 this month from a revised 105.6 in Aug. This marked the most significant drop since Aug 2021, sparking concerns about the health of the US economy.
- As a result, market expectations for another 0.5% rate cut by the Fed at its Nov meeting have increased significantly. According to CME Group's FedWatch Tool, the probability of such a move jumped to 60.7% from 53% just a day earlier. This shift towards a more dovish monetary policy stance has further weakened the US dollar as investors become more risk-tolerant.
Technical theme:
- On the 4-hour chart, DXY broke its support area of 100.55-100.60 and confirmed its downward movement. The price is trading below both EMAs by a fair distance, and there is a risk of a potential mean reversion if it tests a strong psychological level, such as 100.00, ahead.
- If DXY extends its decline, it may retest and find psychological support around 100.00, confluence with its descending channel's lower bound.
- Meanwhile, DXY may recover to fill its gap and retest the broken area around 100.55-100.60 before resuming its downward movement.
Analysis by: Dat Tong, Senior Financial Markets Strategist at Exness
