The US Dollar strengthens early in the week with European PMIs triggering USD buying

• The US dollar sees substantial buying in the European session on Monday.
• European PMIs tumbled in September as traders await US PMIs on Monday.
• The US dollar index climbs and recovers 101.00 in early trading on Monday.

The US dollar (USD) is strengthening on Monday and trading above 101.00 after preliminary purchasing managers’ index (PMI) data from S&P Global and Hamburg Commercial Bank (HCOB) painted a very sketchy picture for France, Germany and the euro zone in generic. The slump in activity spells trouble ahead and now shifts the negative focus to Europe. The greenback sees a flight to safety away from the euro, which is bleeding on all fronts.

On the economic data front, traders will be able to compare European PMIs with US PMIs. Global S&P PMIs for the United States (US) will be released ahead of the US trading session, with the Services component being the most important. With almost all PMIs in Europe contracting, it looks more like Europe is headed for a recession, while the US continues to enjoy resilient activity.

Daily Market Reasons: Back to the Regular Message

• The main event on Monday will be the preliminary release of the US S&P Global PMI for September:
  • The services data is expected to fall to 55.2 from the previous reading of 55.7.
  • A small increase in the manufacturing figure is expected, although it remains in contraction at 48.5. That’s slightly better than August’s 47.9.
  • The Composite number was at 54.6 in August, with no forecast available.
• US Federal Reserve spokespeople are set to shine their light with some commentary on the current stance of monetary policy:
  • At 12:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic delivers a virtual speech on the US economic outlook at the Distinguished Speakers Seminar convened by the University of London’s European Center for Economics and Finance.
  • Near 14:15 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee delivers a speech on monetary policy and the US economy at the annual meeting of the National Association of State Treasurers in Chicago.
  • Around 17:00 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari participates in a Q&A hosted by the Greater Kansas City Chamber of Commerce at the Science Museum of Minnesota.
• Equity markets are tumbling in Europe amid those ugly PMI numbers for Germany, France and the wider Eurozone. Meanwhile, U.S. futures are dragging and are as low as they are ahead of the U.S. trading session.
• The CME Fedwatch tool shows a 50.6% chance of a 25 basis point rate cut at the next Fed meeting on November 7, while 49.4% are pricing in another 50 basis point rate cut. basis.
• The benchmark US 10-year yield is trading at 3.74%, flirting with last week’s high of 3.76%.

Technical Analysis of the US Dollar Index: Watch out for the squeeze!

The US Dollar Index (DXY) looked unable to make a move higher last week when the Fed pulled the trigger on that 50 basis point cut. The greenback could be the one to bounce back this week, with Monday’s PMI releases likely painting a very different picture for traders to consider. Europe’s performance could be much gloomier than the US, meaning the US dollar deserves an upgrade (appreciation) from where it was trading last week.

The high of the September range remains at 101.90. Above, the index could reach 103.18, with the 55-day simple moving average (SMA) at 102.59 along the way. The next upside leg is very cloudy, with the 100-day SMA at 103.71 and the 200-day SMA at 103.78, just ahead of the high round of 104.00.

On the downside, 100.62 (December 28, 2023 low) is the first support, which could indicate more weakness ahead. Should it occur, the July 14, 2023 low at 99.58 will be the next level to watch. If this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart