• The Greenback adds a third straight day of gains in its recovery attempt.
  • Traders will be looking for clues and guidance from Fed Chairman Powell.
  • The US Dollar Index is still in the 105-region, with still more room to the upside to recover from last week’s decline. 

The US Dollar (USD) is starting to recover, but it looks to be for all the wrong reasons. As the earning season is coming to an end, traders are now starting to draw a global picture of the US, and ergo, the world’s economy. With several big names disappointing and recently the bigger retailer discounters showing rising profits, it reveals that the current elevated rate environment is eating into people’s wallets and the US is at bigger risk than ever of falling into a recession together with the rest of the world. 

On the economic data front, traders will want to hear from US Federal Reserve Chairman Jerome Powell later this Wednesday. More Fed speakers are due to speak at the end of this Wednesday and could paint a clearer picture of the concerns the Fed has at the moment and if a recession is part of that. 

Daily digest: US Dollar all about the Fed 

  • Around 12:00 GMT, the weekly Mortgage Applications index will be released by the Mortgage Bankers Association (MBA). The previous print for the index was -2.1%.
  • US Federal Reserve Chairman Jerome Powell is due to speak at 14:15 GMT. 
  • Near 15:00 GMT the US Wholesale Inventories are due to come out. The previous number was at 0%, and 0% is expected.
  • The US Treasury will try to allocate a 10-year note in the markets near 18:00 GMT.
  • Two Fed speakers are expected at the end of the US session with John Williams from the New York Fed at 18:40 GMT and Philip Jefferson from the Board of Governors of the Fed at 21:45 GMT. 
  • Asian equities are yet again in the red, though less severe. Europe and the US are not doing any better. The red numbers are the result of better than expected earnings from the top three US retail discounters in the US, which means that US consumers are looking for cheap alternatives instead of paying full price for goods and services. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 90.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. 
  • The benchmark 10-year US Treasury yield trades at 4.59%, finding some calmer ground after last week’s volatility. 

US Dollar Index technical analysis: US Dollar driven by Fed this Wednesday

The US Dollar is back in grace as an alternative and safe haven as investors are asking whether the world is heading – or is already – in a recession. The element that underpins this thesis comes as US earnings this week revealed that retail discounters have seen increased productivity and earnings in their recent quarter. The US consumer is feeling the pain of elevated rates, which means soon something will snap in the economy. 

The DXY was looking for support near 105.00, and has been able to bounce ahead of it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.

On the downside, 105.10 is still acting as a line in the sand. Once the DXY slides back below that, a big air pocket is opening up with only 104.00 as the first big level where the 100-day Simple Moving Average (SMA) can bring some support. Just beneath that, near 103.50, the 200-day SMA should provide similar underpinning.