US dollar erases weekly losses, returns to bullish level ahead of Fed minutes

• The US dollar is trading in the green against almost every G10 currency on Wednesday.
• Chinese markets are selling off again for a second straight day on weak numbers from the Golden Week.
• The US Dollar Index is trading above 102.50 and looks to be on its way to 103.00.

The U.S. dollar (USD) ties back to gains as markets still have concerns about China. Recent Chinese data released on domestic activity during the Golden Week showed that there was less spending as expected. This keeps concerns about China’s economic activity – both domestically and internationally – at the top of the agenda.

The economic calendar is again very light for this Wednesday. Besides some light data such as Wholesale Inventories for August, the main event will be the release of the minutes of the Federal Open Market Committee (FOMC), which will reduce the Federal Reserve’s latest rate decision in September. Markets will see the reasoning behind the 50 basis point rate cut and what it means for the November rate decision.

Daily Market Reasons: China is dead weight this week

• Concerns about China continue to keep markets in a bind. Chinese shares are still selling off, with the Hang Seng index down nearly 1.5 percent at the closing bell. The Shanghai Composite fell more than 7%.
• At 11:00 GMT, the Mortgage Bankers Association will publish its weekly index of mortgage loan applications. The previous week showed a contraction of 1.3%. There is no forecast available.
• At 14:00 GMT, August wholesale stocks are due. Expectations are for a steady 0.2% increase as seen in July.
• Two Fed speakers on the docket this Wednesday:
  • Around 16:30 GMT Federal Reserve Vice Chairman Phillip Jefferson (a neutral member of the FOMC according to FXStreet’s Fed Tracker) is speaking at an event organized by the Charlotte Economics Club in Charlotte, North Carolina.
  • At 22:00 GMT, Federal Reserve Bank of San Francisco President Mary Daly (also neutral according to the Fed Tracker) participates in a moderated conversation and question-and-answer session at Boise State University.
• The US Treasury heads to the markets to auction a 10-year note at 17:00 GMT.
• European stocks are looking for direction and trying to shake off negative resistance from the Chinese sell-off, which was limited to only Chinese indices this Wednesday. U.S. stock futures fell by less than a quarter of a percent.
• The CME Fedwatch tool shows an 88.6% chance of a 25 basis point (bps) interest rate cut at the Fed’s next meeting on November 7, while 11.4% is the price of no rate cut. Chances of a 50 bps rate cut have been completely eliminated now.
• The benchmark US 10-year yield is trading at 4.02%, its highest level since mid-August.

US Dollar Index Technical Analysis: USD, the comeback kid

The US Dollar Index (DXY) is setting a record, again at a September high and looks to be headed higher. With a very massive area of ​​several pivot levels just above 103.00, the question is how far this rally can go. Looking at the relative strength index (RSI), a test of 103.18 looks possible, but 104.00 seems out of the question.

103.00 psychological is the first level to approach upwards. Above, the chart identifies 103.18 as the final resistance level for this week. Once above, a very choppy area is emerging, with the 100-day simple moving average (SMA) at 103.30, the 200-day SMA at 103.76 and the pivotal 103.99-104.00 levels in play.

On the downside, the 55-day SMA at 101.96 is the first line of defense, supported by the 102.00 round level and the 101.90 pivot as support to catch any bearish pressure and trigger a bounce. If that level fails, 100.62 also acts as support. Below, a test of the year-to-date low of 100.16 should occur before more declines. Finally, and this means giving up the high of 100.00, the July 14, 2023 low at 99.58 comes into play.

US Dollar Index: Daily Chart