Never miss a story from Christopher Vecchio

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from Daily FX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Christopher Vecchio

You can manage you subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Talking Points:

- The DXY Index is quickly approaching breakout territory after having traded in a sideways congestion over the past six weeks.

- Unless trade war concerns flare up again, there's nothing meaningful on the calendar until Friday's July US Consumer Price Index that is of material interest to the US Dollar.

- Retail traders are have faded both EUR/USD and GBP/USD losses, leading the IG Client Sentiment Index to a bullis outlook for the US Dollar.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar (via the DXY Index) is approaching the topside of its recent near two-month consolidation, and Monday's price action was another step forward towards a bullish breakout materializing in the sessions ahead.

There is very little by way of US economic data before Friday that will prove to be a significant hurdle for the US Dollar; the only 'high' rated event comes on Friday in the form of the July US Consumer Price Index. With price pressures running high at +2.9% y/y in June and due to have remained at the same level in July, there is little doubt the Federal Reserve will tighten policy again when it meets in September.

After all, as the July US Nonfarm Payrolls report showed us last Friday, US Average Hourly Earnings are coming in at +2.7% y/y, meaning that real wage growth is negative. If this is the start of a new trend, which it very well could be, it will only incentivize the Fed to hike rates twice more this year.

Currently, Fed funds futures are pricing in a 90% chance of a 25-bps rate hike in September and a 65% chance of a hike in December. A week ago, odds were closer to 80% and 60% for September and December, respectively.

While there has been little movement around the US Dollar on the news front today - on either of the two big issues, the Fed or the trade war with China - there has been a bit of negativity abroad helping boost demand for the greenback.

Brexit concerns are rearing their ugly head once again, and now that the British Pound has been sapped of rate hike expectations following the Bank of England's one-and-done hike last Thursday, the floor is more or less falling out for Cable. Meanwhile, the Euro continues to face pressure after a weak June German Factory Orders report this morning, but as we examined in the weekly trading forecast, there is very little on the calendar for the Euro to look to for a lifeline to stop its recent skid.

DXY Index Price Chart: Daily Timeframe (July 2017 to July 2018) (Chart 1)

DXY Index Approaches Consolidation Resistance Near Yearly Highs

With the mix of conditions proving supportive for the US Dollar, the recent consolidation by the DXY Index may make an attempt at a topside breakout. We're still await a close above 95.53 (the June 21 bearish key reversal and the June 27 to 29 evening doji star candle cluster highs) to signal that the recent price congestion has finished. Commensurately, a move below 1.1510 would confirm the DXY Index breakout.

Read more: Euro Forecast: Euro Will Need to Look Beyond the Calendar to Stop its Skid

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

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

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

Follow him on Twitter at @CVecchioFX