US dollar extends rally for fourth straight day

• The US dollar rose for the fourth straight day this week.
• Tensions in the Middle East, along with political commentary in Japan, are driving dollar flows.
• The US dollar index is testing the upper band of its September range and could break above it if current conditions hold.

The US dollar (USD) is trading strongly again on Thursday, fueled by refuge flows from heightened geopolitical tensions in the Middle East, a weaker Japanese yen (JPY) and diminished chances of another big interest rate cut by the US . Federal Reserve (Fed) in November.

The US dollar already got a bigger boost in Asian trade on Thursday after new Prime Minister Shigeru Ishiba said on Wednesday that the economy was not ready for another interest rate hike, sending the JPY lower. Unrest in Lebanon is also supporting the Greenback with safe haven flows.

The economic calendar is set for another very busy day. In addition to weekly jobless claims, markets are gearing up for the S&P Global Services Purchasing Managers Index and the Institute for Supply Management’s (ISM) September numbers.

Daily Market Reasons: Foreign Aid for the US Dollar

• New Japanese Prime Minister Shigeru Ishiba said on Wednesday that the economy is not ready for another interest rate hike, sending the yen lower, Bloomberg reported. Bank of Japan (BoJ) board member Asahi Noguchi was quick to comment that markets should not respond to every comment made by politicians.
• There were also surprising comments from Bank of England (BoE) Governor Andrew Bailey, who told the Guardian newspaper that the BoE may need to start tapering soon and aggressively, Bloomberg reports.
• The US economic calendar started early with Challenger Job Cuts data for September. About 72,821 jobs were cut compared to 75,891 layoffs in August.
• At 12:30 GMT, weekly jobless claims are due and initial claims will rise marginally to 220,000 from 218,000.
• At around 13:45 GMT, the final S&P Global Services Purchasing Managers’ Index (PMI) for September is expected to be unchanged from its preliminary reading of 55.4. The composite PMI should also hold steady at 54.4.
• The Institute for Supply Management (ISM) will release its September figures for the Services sector at 14:00 GMT:
  • The headline PMI should come in slightly higher at 51.7 from 51.5 a month earlier.
  • On the main sub-indices, employment was 50.2 in August, new orders at 53 and prices paid reached 57.3.
• At 14:40 GMT, Atlanta Federal Reserve Bank’s Raphael Bostic participates in a discussion with Minneapolis Fed President Neel Kashkari as part of the Institute for Opportunity and Growth’s 2024 Fall Research Conference.
• European shares fall more than US futures after French President Emmanuel Macron announced new taxes. U.S. stock futures fell less than 0.5 percent as markets remained jittery about the situation in Lebanon and the Middle East.
• The CME Fedwatch tool shows a 67.4% chance of a 25 basis point rate cut at the Fed’s next meeting on November 7, while 32.6% is the price for another 50 basis point rate cut. basis.
• The benchmark US 10-year yield is trading at 3.80%, trying to test the three-week high at 3.81%.

US Dollar Index Technical Analysis: A Gains Streak on the Rise

The US dollar index (DXY) has seen a stellar recovery this week, albeit with little outside help. With the DXY now touching the upper ceiling at 101.90, there could be a risk of a rejection occurring, with the DXY unable to break out of the September range. Ideally, the DXY could stay around these levels and have the Non-Farm Payrolls number as a catalyst to either push the DXY higher or send it back lower towards the bottom end of this month.

The recovery has been going well and he may be facing the end of the line for now. expect this September high at 101.90 to remain the first rising resistance level for now. Just above, the 55-day simple moving average (SMA) at 102.09 will enter. A leg higher, the chart identifies 103.18 as the final level for this week up.

On the downside, 100.62 turns from resistance to support if the DXY closes above it on Tuesday. The fresh 2024 low is at 100.16, so there will be a test before more downside occurs. Below that, and that means giving up the high of 100.00, the July 14, 2023 low at 99.58 comes into play.

US Dollar Index: Daily Chart