The Bottom Is In?
The Dollar market outlook has been a bit off over the last few weeks. The global reopening had traders flooding into the risk-on trades for some reason but now that may be over. A growing number of new cases both globally and within the U.S. has traders on edge. The second wave is at hand and that means another big shift in the market could be too.
Last week, the DXY fell to a new low but that low, finally, resulted in a solid bounce. The bounce formed a nice-looking white candle that shows a possible bottom may be in play. The bottom is consistent with a long-term trading range that was impacting prices long before the COVID pandemic took place. What this means for us is that price action may continue higher in the near-term, within the range, with a chance of resistance along the way.
On a technical basis, the bounce looks good. At least the set up is good, so there is a growing probability the DXY and dollar will begin to move higher later this week. Looking at the calander, there are several economic reports due out that could separately or in tandem aid the index movement. First up is the Empire State manufacturing index due out today. That, coupled with the Philly Fed index later in the week will give a pretty solid indication of U.S. manufacturing. Over the last two months there has been a major contraction.
After that, retail sales is a high-probability event. The retail sales figures is a primary indicator of consumer health and U.S. economic activity so will be closely watched. Last month retail sales fell about 14%, expect a negative YOY figure this month too. The next big event will be the Home Builder’s Index coupled with the Permits/Starts figures. The housing sector has seen some interesting activity over the last month or two so this number could be a nice surprise. Regardless, if the market sees signs of recovery within any of the data you can rest assured the dollar will respond.
If the index moves above the $97.25 level a move up to $98.50 is the next most likely scenario. Beyond that, it will depend on how the reopening goes, and how the 2nd wave of COVID goes.