US DOLLAR OUTLOOK: USD EDGES HIGHER FOLLOWING KEY DATA, BREXIT LATEST
- US Dollar catches bid to turn positive on the day with the help of overall solid economic data
- The DXY Index could attempt to pivot higher from here after bouncing off technical support
- GBP/USD price action pivoted sharply lower owing in large part to lingering Brexit uncertainty
The US Dollar is trading mixed on Thursday shortly following the opening bell on Wall Street. The broader DXY Index has been under pressure for the last two days in large thanks to a strong return of trader risk appetite, which seems to follow the last-minute passage of US government funding bill and growing speculation over another round of coronavirus stimulus.
US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (16 JUL TO 01 OCT 2020)
Chart created by @RichDvorakFX with TradingView
USD selling pressure into month-end and quarter-end likely contributed to the recent stretch of US Dollar weakness. However, as the DXY Index flirts with a big area of confluent support and FX traders flip their calendars to October, there could be potential for the US Dollar to ricochet back higher. The DXY Index looks like it is attempting to bounce off its 20-day moving average. This area of technical support is also highlighted by the 38.2% Fibonacci retracement of last month’s trading range.
US ECONOMIC CALENDAR - 01 OCT 2020: INFLATION, JOBLESS CLAIMS & PMI DATA
Chart Source: DailyFX Economic Calendar
Furthermore, US economic reports could help bolster the Greenback from here as global PMI data fans volatility. Though the ISM manufacturing PMI report for September missed consensus estimates of 56.4 with a reading of 55.4, the leading economic indicator shows that the manufacturing sector continues to expand albeit a slower growth rate. Weekly jobless claims data posted a positive surprise by topping market forecast and could overshadow fears arising from massive layoffs announced by top US companies.
For example, Disney announced a disheartening 28,000 layoffs earlier this week. With US politicians still struggling to find agreement on another round of much-needed fiscal aid, failure to break the gridlock could spark a sharp rise in the S&P 500 VIX Index, or fear-gauge, which could lead to a stronger US Dollar in turn. On that note, the release of high-impact nonfarm payrolls data, due this Friday, 02 October at 13:30 GMT has potential to weigh heavily on trader risk appetite.
GBP/USD PRICE CHART: DAILY TIME FRAME (21 MAY TO 01 OCT 2020)
Also, it is worth mentioning that the US Dollar perking up this morning is likely being fueled in part by GBP/USD price action. The Pound-Dollar pivoted sharply lower on Thursday after hitting technical resistance around the 1.2950 level. Officials from the European Union contradicted confidence out of the UK over the status of Brexit trade negotiations by stating there has been no increase in optimism following latest Brexit talks.
| Change in | Longs | Shorts | OI |
| Daily | -3% | 7% | 0% |
| Weekly | 4% | -11% | -1% |
Moreover, the EU has begun to move forward with taking legal action against the UK in response to Prime Minister Boris Johnson’s Internal Market Bill. Lingering Brexit uncertainty could continue to weigh negatively on GBP/USD and underlying market sentiment, which may help the broader US Dollar stay in demand. Not to mention, mounting second wave risk as new coronavirus cases spike across the UK emphasizes potential for further GBP/USD weakness. This could bring the 1.2700-handle into focus as a possible downside target for GBP/USD bears.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
