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Talking Points:

- Rates markets continue to price in March 2018 as the most likely period for the next Fed rate hike, although those odds have climbed through 80% now.

- A quieter economic calendar means technical patterns will have less interference in finding follow-through, although the news wire is a veritable source of risk.

- Retail trader sentiment continues to suggest weakness among the major USD-pairs.

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The US Dollar (via DXY Index) is working on its third consecutive day higher, although it is far too soon to say that its multi-month downtrend is over. Despite ongoing enthusiasm in other US assets thanks to the tax reform bill, the lack of constructive long-term growth prospects has left the US Dollar wanting for more.

At present time, the most the market has been willing to extend to USD-traders has been the briefest of rebounds. Bearish momentum has started to abate, with price now above the daily 8- and 13-EMAs. However, given that the downtrend from the November and December swing highs remain, coupled with the fact that Stochastics and MACD continue to point lower in bearish territory, we can conclude that the DXY Index downtrend is still alive and merely taking a breather; looking for opportunities to 'sell the rally' in USD-pairs is still preferred.

Chart 1: DXY Index Daily Timeframe (September 2017 to January 2018)

USD Rebound Gathers Pace but Still in 'Sell the Rally' Mode

Given that the DXY Index is made up of 57.6% Euro, it's not surprise then that that EUR/USD is offering a mirror image of how the broader dollar guage is unfolding.

Accordingly, if the DXY Index downtrend is still valid so long as price holds below 93.40 through the end of this week, traders would be apt to watch 1.1837 as the key level in EUR/USD: it is not only the October 26 bearish engulfing bar high, but also represents the area where price and time meet for support in the uptrend from the November and December swing lows.

See the above video for technical considerations in the DXY Index, EUR/USD, USD/JPY, GBP/USD, USD/CAD, EUR/GBP, and NZD/JPY.

Read more: FX Markets Tracking Global Equities, US Dollar Awaits CPI & Retail Sales

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

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