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DXY Tests November Downtrend; GBP Bullish Posture Improves

DXY Tests November Downtrend; GBP Bullish Posture Improves

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- DXY Index back to October 26 bullish outside engulfing bar low for second day in a row, concurrently testing the downtrend from the November 7 high.

- The recent characterization of progress in the Brexit talks as having finally reached agreement on the 'divorce bill' has allowed GBP-crosses to rally consistently the past week.

- Retail trader sentiment suggests mixed trading conditions in the US Dollar through the end of the week.

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The US Dollar (via the DXY Index) hasn't made much progress one way or the other over the past 24-hours, clocking in near 93.35, where it was trading this time yesterday. More whipsaw price action in the Euro, and Japanese Yen losses offsetting British Pound gains has left the greenback treading water.

While saturated, the US economic calendar hasn't provided any material information that would derail the Federal Reserve's plans to raise rates in December, and thus, it has proven to be of little influence on the US Dollar this week.

However, with the release of the October US Core PCE reading later this morning - the Fed's preferred gauge of inflation - there is some room for speculation about the path of interest rates beyond the December meeting to influence markets.

Over the past few weeks, we've heard more and more about how Fed policymakers are paying attention to the disinflation seen in some of the inflation data in recent months. Any evidence that price pressures will remain muted may ultimately force the Fed to reduce their own expectations for three rate hikes next year, which would be USD-negative.

Elsewhere, we're watching GBP/USD the break of the multi-month consolidation gathers pace. Price broke down into the 1.3018 to 1.3340 range on October 1, and as of yesterday, it finally traded out of this range to the topside.

The catalyst? It now appears the UK is willing to accept the €100 billion liability for leaving the EU, the 'divorce bill,' so the Brexit negotiations appear to be turning earnestly in the right direction.

As such, we'll be keeping an eye on the EUR/GBP range for a potential breakdown in the coming days, while the GBP/JPY symmetrical triangle now has a greater chance of breaking to the topside. See the video above for full technical considerations in these pairs plus the DXY Index, EUR/USD, GBP/USD, and USD/JPY.

Read more: Gut Check for EUR/USD Reversal; GBP/USD Looks to Exit Range

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.