USD Pauses for Now

The US Dollar starts the week in somewhat muted fashion as traders await fresh directional catalysts. Interesting to note that the CFTC institutional positioning report shows that USD long positions were reduced again last week, marking the third consecutive week of long covering. USD longs had hit their highest level in over a year last month at $10.10 billion. The shift in positioning is likely a combination of profit taking and a reaction to a less hawkish outlook from the Fed. With markets still split over whether the Fed will tighten rates again in coming months, USD has plenty of two-way risk.

FOMC On Watch

Looking ahead this week, the headline focus will of course be on the November FOMC due Wednesday. The Fed is widely expected to keep rates on hold, meaning the bigger focus will be on its latest outlook. With Powell recently saying that higher bond yields were reducing the need for the Fed to tighten further, traders will be keen to hear whether this is still the view (unlikely more tightening coming) which should see USD sold, or if on the back of recent data strength the Fed still sees further hikes. In the latter case, USD is likely to see fresh buying.

Technical Views

DXY

The rally in DXY has stalled for now into a test of the 107.57 level. Price has since cooled off a little and is trading a range between those highs and support at the 104.95 level. While 104.95 holds as support, the focus remains on further upside and an eventual breakout towards 109.18 next. On a break lower, however, focus shifts to 103.48 next.