U.S. Dollar Drops Ahead Of FOMC Minutes; EUR/USD, GBP/USD Catch Bids

In yesterday’s article, we looked at the U.S. Dollar being in a rather precarious position after tagging a key zone of resistance to finish off last week. Of course, last week ended on a rather sour note as Non-Farm Payrolls printed with the first contraction in over seven years (September, 2010). While this is being discounted to a degree, given that Hurricanes Irma and Harvey drove large portions of the U.S. economy into standstill during September, it’s still a rather shocking number that doesn’t quite instill confidence as the Federal Reserve is appearing to take a headstrong approach towards another rate hike this year.

Previously, Chair Yellen had said that inflation below the Fed’s 2% goal would not necessarily preclude the bank from hiking rates. But this element of slowdown in the labor force is another matter entirely, as employment has been one of the few consistent strong points for the U.S. economy while inflation has tapered-lower after the December and March rate hikes. It was in March, when the Fed began discussing the prospect of balance sheet reduction that the move of USD-weakness really took on life. And throughout the summer, as balance sheet reduction received more and more focus, market expectations for rate hikes out of the Fed whittled lower as markets grew skeptical that the Fed would be able to hike again while a) tightening policy via the balance sheet and b) while inflation remained below 2%.

This led to an aggressive down-trend that saw as much as -12.33% of the Dollar’s value erased this year. As we moved into Q4, USD had started to show a bit of strength to move up to a key zone of resistance that runs from 94.08-94.30; and at this point, that resistance has held as sellers have begun to show.

U.S. Dollar via ‘DXY’ Daily: Resistance Holds for Potential Lower-High in Bearish USD Continuation

Chart prepared by James Stanley

In yesterday’s article we looked at three support areas on we looked at the U.S. Dollar being in a rather precarious position after tagging a key zone of resistance to finish off last week in the effort of identifying when the bigger-picture down-trend might be coming back into the Greenback. At this point, DXY is testing the first of those support levels around 93.26, and further down-side run opens the door for bearish USD-continuation strategies.