Daily Market Recap – DXY Dollar pulls back on major support

The greenback is down after hitting a one-year high of 94.50 on Wednesday. The market is rebalancing after a semblance of excess that saw the DXY soar more than 1% in 4 sessions on stagflation fears.

Indeed, demand for the greenback had exploded last week due to the surge in energy prices. Demand for cash was strong, bonds, stocks, and even precious metals were down.

Since then, the market has rebalanced somewhat in the short term. Gold prices are recovering, bonds are stabilizing, and major currencies are gaining some ground against the dollar. Only the equity market still seems under pressure.

In addition to energy prices, the release of the monthly U.S. jobs report and the federal debt ceiling will be two important catalysts for the dollar.

A better-than-expected jobs report would bolster the prospects for a gradual reduction in Fed interest rates, which should strengthen the dollar. As for the debt ceiling issue, an increase in the ceiling should reduce uncertainty, which could put pressure on the dollar.

In the long term, the dollar is supported by the Fed's prospects for normalizing monetary policy, unlike the ECB, which is expected to maintain its current monetary policy at least until early next year.

From a technical perspective, the pullback in the DXY since last Wednesday allows the dollar to return to an attractive price zone to reposition itself as a buy. Indeed, the DXY has returned to test the neckline of its long-term ascending triangle from which it emerged at the top last week (daily chart).

Buying on this support is therefore interesting given the change in trend. In case of a pullback below the neckline, it will be better to wait for a return to the bullish oblique that runs through the lows of June, July, August, and September.

 (Chart Source: Tradingview 05.10.2021)

The ascending triangle gives a bullish outlook to at least 97.40 points, but the September 2020 high at about 95.00 points will be intermediate resistance to watch.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.