Talking Points:

- The DXY Index has fallen back to the daily 21-EMA, previously resistance on a closing basis between June 22 and September 20.

- The September 20 FOMC meeting sparked a bullish outside engulfing bar in DXY; the minutes should reveal the inner workings of what was perceived as a hawkish meeting.

- Retail trader sentiment suggests the near-term outlook for the US Dollar is neutral.

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The US Dollar has stabilized after three straight down days on the cusp of what should be a bullish stretch of data and events through the end of the week. The underlying factors of the DXY Index's recent rally - the rise in US Treasury yields on the back of Fed rate hike expectations repricing - remain intact, although it is worth noting that correlations between the US Treasury 10-year yield and pairs like USD/CHF and USD/JPY have fallen back in recent days.

Clearly, the US Dollar needs a positive spark if the DXY Index is going to hold the daily 21-EMA as support, a moving average that provided resistance (on a closing basis) for three months. Enter the September FOMC meeting minutes, due out today at 14 EDT/18 GMT.

The Federal Reserve’s September policy meeting was a turning point for the US Dollar: the DXY Index established a bullish outside engulfing bar and pierced its daily 21-EMA for the first time since June 22. But the technical reversal was not without a fundamental driver.

The FOMC’s decision to signal to markets that it intended on fulfilling its preset course for interest rates – as laid out initially in the December 2016 summary of economic projections (SEP) – by raising rates a total of three times in 2017 and another three times in 2018 caught market participants off guard: there was only a 45% chance of another rate hike by the end of the year; and only two hikes were priced in for 2018.

Now, rate hike expectations have firmed up sharply (76% chance of a hike before the year is out, and two-and-a-half hikes are priced in for next year) – look for the FOMC minutes to reinforce this development that has carried the US Dollar higher over the past three weeks.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CHF, Gold, and US yields.

Read more: US Dollar Uptrend Dented as Euro, Pound Find Reasons to Rally

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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