The US Dollar (USD) has embarked on its tenth consecutive winning streak as the new trading week kicks off. Despite this impressive run, there are growing signs that the rally might be nearing its end. While last week saw the USD closing in the green, the University of Michigan's inflation expectations components suggest that market participants believe the US Federal Reserve (Fed) is nearing the end of its rate hikes – a potential negative for the Dollar.
The week ahead offers a relatively light economic calendar, with most traders holding their breath for the main event: the Fed meeting on Wednesday. Until then, some selling pressure on the USD is expected, particularly if it struggles to break higher. This puts the US Dollar Index (DXY) at risk of retreating, potentially easing slightly from its recent six-month high.
Key Highlights of the Week:
Euro Troubles: Bond spreads between the 10-year German and Italian bonds have surged to 180 basis points, a level not seen since June, indicating growing concerns within the Eurozone.
Russian Jet Intercept: Russia scrambled a MIG-31 jet to intercept a US plane flying over the Barents Sea, according to RIA reports, adding to geopolitical tensions.
Central Bank Meetings: Several central banks, including the Swiss, Norwegian, Swedish, Japanese, and British, are set to issue their rate decisions this week, potentially influencing global markets.
Crude Oil Prices: WTI Crude oil hit a new yearly high at $90.84, and this surge in oil prices could contribute to elevated inflation in the coming quarter.
Economic Calendar: The week starts with a light economic calendar, with the focus squarely on the upcoming US Federal Reserve rate decision.
Housing Market Index: The National Association of Home Builders released its Housing Market Index for September, which dropped from 50 to 45, indicating a decline in sentiment in the US housing market.
US Treasury Auction: The US Treasury Department conducted auctions for 3-month and 6-month bills.
Equity Markets: European bank shares faced some selling pressure due to disappointing comments from Societe Generale.
Market Expectations: According to the CME Group FedWatch Tool, markets are pricing in a 97% chance that the Federal Reserve will keep interest rates unchanged at its September meeting, following recent PPI and Retail Sales figures.
US Dollar Index Technical Analysis:
The US Dollar Index (DXY) has shown strength, hovering near 105.41, just a hair's breadth away from the 2023 high near 105.88. A weekly close above this level could potentially drive the US Dollar even higher in the medium term.
On the downside, the DXY found support at 104.44 on August 25, preventing further declines. If the recent uptick, starting on September 12, reverses and breaches 104.44, a significant downturn could unfold, potentially targeting 103.04, where the 200-day Simple Moving Average (SMA) provides support.
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