U.S. Dollar Index (DXY) Gives Back Early Gains

While the US dollar (DXY) was higher earlier in today’s trading, the greenback came under pressure following the release of US Q3 GDP and has maintained a downside bias since. DXY is currently trading at 100.98, down 0.17% from Monday’s NY close.

The second estimate of third quarter US GDP showed growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate. The dollar peaked at 101.64 as the data was released but has since been under pressure.

The dollar also failed to catch a bid following the release of US consumer confidence, which surged to a 9-year peak in November. The Conference Board reading of consumer confidence increased sharply to 107.1 for November from an upwardly revised 100.8 for October, which was originally reported as 98.6. This was the highest reading since the middle of 2007.

Also during today’s session, Fed Governor Powell backed a December rate hike. He stated that incoming data showed the economy growing at a healthy pace with solid payroll growth and inflation gradually moving up to 2%. In Powell’s view, the case for an interest rate increase has clearly improved since the previous meeting in November. At present, fed fund futures are pricing in a 96.3% probability of an interest rate increase at the FOMC meeting in December.

Despite the bullish developments, the dollar is under pressure in today’s session. It could be that the dollar is merely reacting to the severe overbought condition which has developed as a result of the protracted rally from the November low.

On the downside, first support is at the November 22nd low at 100.65, which was reinforced by yesterday’s move to 100.64 for a low and subsequent bounce. Continuing to hold this level would keep the near term bias in the dollar firmly to the upside.

The current high in the dollar stands at 102.05, which represents a test of the next level of resistance at the 102-102.15 zone. Given the test of resistance and current overbought condition, a period of consolidation or correction could remain underway in tomorrow’s session.

Should dollar strength reassert itself, resulting in a breakout to new rally highs, the next target becomes 103.50. Longer term, the target for the dollar is at the 108-109 area. This target is derived from the recent breakout from a multi-month consolidation phase, as can be seen on the monthly chart.

In tomorrow’s trading, the ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month, while Chicago PMI is forecast to rise to 51.8 from 50.6. Pending home sales and the Fed’s Beige Book are also due out on Wednesday. Then on Thursday, initial jobless claims are on the calendar, as is the ISM manufacturing survey. Economists expected the figure to rise slightly to 52.0 from 51.9 in October.

The key report for the week is nonfarm payrolls for November on Friday. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs. A much weaker-than-expected number could call into question the potential for a December rate hike, a development that would likely hit the dollar hard, at least on a short term basis.

The latest Commitment of Traders report from the CFTC was released on Monday with data as of the November 22nd close. The report indicated large speculators increased long positioning by 11,476 contracts and increased short positioning by 6,715 contracts. The current net long positioning of US dollar futures contracts stands at 53,189. This is not far off from the recent peak in net long positioning of 54,330 contracts as of the November 1st close. Market participants are net short all of the major currencies against the dollar, except for the Japanese yen, New Zealand dollar and Australian dollar.

U.S. Dollar Index Daily/Monthly Charts


Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.