Top Story

DXY and EUR/USD Retreat From Key Levels Ahead Of Fed

Traders have become less bullish on the USD recently. As of last Tuesday, traders had reduced net-long exposure on DXY to a 6-week low. Bullish exposure fell -6.2k contracts (its largest bullish reduction since March) and the move was fuelled by closure of longs and increase of shorts. Furthermore, net-short exposure for CAD, CHF, EUR, GBP and NZD was reduced and net-long exposure on CAD futures saw an increase against the dollar.


With the CME FedWatch tool implying a 95.7% chance the Fed will cut by 25 bps on Wednesday, the cut may well already be priced in. We’d therefor likely need a dovish cut (via the press conference) to see a notable downside move for the dollar. However, as previous analysis has shown, the USD dollar tends to appreciate following a Fed cut. Whilst the average forward return suggests gains are more likely between 3-10 day after a cut, DXY has risen on the day of the cut in July and September this year.


Last week’s bullish candle snapped a 3-week losing streak and saw prices remain above the 97, with the 50-week eMA acting as support. Whilst the broad bullish channel allows for further downside, the typical correction of ‘around’ 2.5% from its highs this channel has become accustomed to has been achieved, so it’s possible we may have seen the low. 


Switching to the daily chart, the bounce from 97 occurred and prices are now having around the September lows. It’s failure to hold below the 200-day eMA is worth noting as when this occurred in June, it was the beginning of its break to new highs. A dark cloud cover has occurred at the highs with the 100-day eMA capping as resistance, and a dovish cut and / or knee jerk reaction following the Fed meeting could see this level continue to hold over the near-term. However, whilst prices remain above 97 the bias is for a break to new highs. Although with the Fed meeting less than 48 hours away, it’s possible prices could remain rangebound until the press conference.


As for EUR/USD, a bullish 2-day bar reversal is apparent above 1.1070 support to suggest a minor bounce could be on the cards. Although the 200-day eMA has remained unchallenged and continues to point lower. If we’re bullish on DXY, then clearly we’re going to be bearish on EUR/USD due to their strongly inverted correlation (DXY is heavily weighted towards the Euro at around 57%). A firm break below 1.1070 opens up a run towards 1.10, whilst a break above 1.12 suggests price are to retrace towards the upper bounds of the bearish channel.


Related Markets: 

  • Invesco DB USD Dollar index Bullish CFD/DTF
  • USD Index (per 0.01) CFD/DFT


Related analysis:
Maybe, Just Maybe... The Dollar Is Due A Bounce | DXY, CHF, NZD, AUD
The Fed Are Expected To Cut Today – How Has That Fared For Markets Historically?
USD/JPY on the Move with Risk


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account