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Talking Points:

- The DXY Index is working on only its second day in the black in the past two weeks.

- Given scope of EUR/USD breakout and DXY Index breakdown, it's too soon to say the pain is over for the US Dollar.

- Retail traders are net-short EUR/USD, and net-long GBP/USD and USD/JPY.

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 gaining ground for only the second time in the past two weeks of trading as a lack of significant headlines regarding the United States' multi-front trade war have died down over the past 24-hours. While much attention has been paid to the apparent US-Mexico trade agreement, without Canadian consent and approval by US Congress, President Trump's best laid plans could go awry.

On the economic data front, the morning was mostly quiet in Europe, with both the September German GfK Consumer Confidence survey and the first revision to the Q2'18 French GDP figure landing right on expectations. The economic calendar in Europe will barely play a role the rest of the week either (no surprise considering its the last week of August, when Europe goes on holiday).

More pressure may come to the European currencies if attention swings back to Turkey, where the Turkish Lira has been falling again in recent days (USD/TRY is back above 6.40). Recall that the Euro is exposed to Turkish Lira weakness vis-à-vis the European banking system's unhedged exposure to Turkish borrowers.

Otherwise this morning attention will be on the first revision to the Q2'18 US GDP report. According to Bloomberg News, the consensus forecast calls for annualized headline growth due in at +4.0%, a barely discernible difference from +4.1% initially reported.

The GDP release poses asymmetrical risk for the US Dollar: if it meets or beats expectations, there is little to be gained by the greenback as Fed funds are already pricing in a 95% chance of a rate hike next month; if it misses expectations, even a small retracement in rate expectations could accentuate the recent dollar pullback.

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

US Dollar Working on Second Up Day in Two Weeks

In the near-term for the DXY Index, price remains below its daily 8-, 13-, and 21-EMA envelope, while both daily MACD and Slow Stochastics continue to trend lower (with the former close to issuing a sell signal). Further losses should be anticipated until the July 26 bullish outside engulfing bar low is reached near 94.08; the short-term outlook is to sell US Dollar rallies.

Read more: DXY Index Slumps to Four-Week Low as EUR/USD Retakes 1.17

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

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

Follow him on Twitter at @CVecchioFX