US Dollar Bias Shifts to Neutral as New Range is Carved Out
- The DXY Index found support yesterday near the October 26 bullish outside engulfing bar low at 93.48.
- Likewise, a further bullish EUR/USD bias would require a weekly close above 1.1838, the bearish engulfing bar high from the October 26 ECB meeting.
- Retail trader sentiment now points to a greater likelihood of further US Dollar losses.
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The US Dollar's sharp rebound yesterday seemingly out of nowhere - the October US Advance Retail Sales and CPI reports were rather uninspiring - suggests that traders aren't ready to throw in the towel on the greenback just yet.
True, while the range between 94.29 and 95.17 was broken on Tuesday, the reaction by the DXY Index at the lows of the October 26 bullish outside engulfing bar - and for that matter, the reaction by EUR/USD at the highs of the October 26 bearish outside engulfing bar - says that we prices may have just shifted into new ranges, not necessarily having shifted into momentum/breakout setups yet.
For now, this means that the US Dollar has a neutral bias until prices clear 94.29 to the topside or 93.48 below. As has been the case for the past several days, the key issue on the docket for the US Dollar is the progress of tax reform legislation through Congress, as the odds of a Fed rate hike in December continue to reflect a 100% chance of a 25-bps rate hike.
To this end, the US Dollar finds itself in a very similar boat as the British Pound. The Bank of England made clear its rate hike was of the 'one-and-done' variety, that monetary policy wouldn't be changing any time soon thanks to uncertainty around Brexit.
In effect, speculation around the BOE has been nullified as a catalyst in the near-term. The same can be said about the US Dollar: now that rate hike odds are fully pricing in a 25-bps move in December, focus will be elsewhere for the foreseeable future.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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