Will US Dollar Reverse After Month End? DXY, Gold
Joe Perry October 30, 2020 2:10 PM
Will the US Dollar reverse and continue with its longer-term decline?
Today is the last trading day in October, and the US Dollar has been bought over the last few day into month end, which may conclude after the London fix (11:00am ET). What happens then? Will the US Dollar reverse and continue with its longer-term decline when November starts?
Heading into the trading day, the DXY has broken out of the top of a descending triangle. This is not typical of this type of formation. Traders will have to be alert that this could be a false breakout and may head back down towards the downward sloping trendline, which will be first support near 93.25, then the recent lows near 92.50. Support below that is the upward sloping trendline (green) from 2011 which crosses near 92.15. Resistance above at yesterday’s high near 94.10 and then September 25th highs near 94.75
Source: Tradingview, FOREX.com
Gold is another instrument to watch. Early in the US session today, Gold is well bid, perhaps leading the way for the US Dollar (inverse relationship). Gold is also trading in a descending triangle, which indicates a possible move lower if price breaks below 1850. However, the correlation coefficient between gold and the DXY is near -.90. A correlation coefficient of -1.00 would indicate that the 2 instruments are perfectly negatively correlated. So, if the DXY does move lower later today, gold may continue higher towards first resistance is 1900, then the top of the downward sloping trendline near 1925.
Source: Tradingview, FOREX.com, Comex
On some month ends, large market participants have trades they need to get done for “rebalancing” or for “window dressing”. The bid the US Dollar over the last few days seems like it could have been one of these months. In addition, with the election on Tuesday, there may be some squaring up ahead of headline risk on Tuesday. Stay extra cautious heading into the elections!
Disclaimer: StoneX Financial Ltd (trading as "Forex.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, Forex.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by Forex.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although Forex.com is not specifically prevented from dealing before providing this material, Forex.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
For further details see our full non-independent research disclaimer and quarterly summary.