Dollar’s Safe Haven Appeal Grows; DXY Sees Upswing
Technical Insight: EUR/USD at a Crucial Juncture
The greenback’s status as a safe haven allowed it to win the battle against its peers and the US Dollar Index (DXY) to climb late last week. Against the euro, the dollar gained significant ground, advancing to the key support at 1.0500.
Oil hovered around $90 a barrel as tensions in the Middle East escalated and Israel’s shekel dropped to an 8-year low. Israel’s Prime Minister Benjamin Netanyahu swore to “demolish Hamas”, while the military prepared to enter the Gaza Strip. According to some market strategists, this is still viewed as a regional conflict.
Rate jitters in the U.S. are still present but according to CME’s FedWatch tool, there’s a 92.9% chance the Fed will keep the rate unchanged at its November meeting. The chances for a rate hike in December are now 31.4%. Fed Chair Jerome Powell is set to speak later in the week, which could be a catalyst for volatility if he shares clues on the rate outlook.
Key Data for the Week Ahead
The first notable release of the week will be the Empire State Manufacturing Index, scheduled for Monday at 12:30 pm GMT. The index acts as a leading indicator of economic health, focused on the manufacturing sector in New York.
On Tuesday at 9:00 am GMT we will take a look at the European economy with the release of the German ZEW Economic Sentiment survey and later in the day, the U.S. Retail Sales will be released. Sales made at retail levels are the primary gauge of consumer spending, which in turn represents the largest part of the entire economy. The time of the release is 12:30 pm GMT and the expected change is 0.3% (previous 0.6%). The Core value is expected to show a 0.2% change (previous 0.6%).
Fed Chair Jerome Powell will speak on Thursday at 4:00 pm GMT at the Economic Club of New York Luncheon. His speech can trigger a market reaction, assuming he will do more than just reiterate the points already made.
Technical Outlook – EUR/USD
The pair is currently trading at 1.0530, after a minor bounce at 1.0500 support. It looks like the US Dollar is gaining traction, as evidenced by the perfect bounce at the intersection of the bearish trend line with the resistance at 1.0635 (late last week).
Before the bearish bounce mentioned above, the pair was oversold and the Relative Strength Index indicated bullish divergence – all signs that a move up will follow. However, that move up was short-lived and the reason could be the sudden appeal as a safe haven of the dollar, in light of recent Middle East developments.
The pair is showing bearish momentum after the bounce at 1.0635, which favors a break of the current support at 1.0500. This is a key level because the next support zone is located around 1.0300; also, the year’s low is in close vicinity, at 1.0448 (reached at the beginning of the current month). If this barrier is broken, we could deal with an extended drop but let’s not forget that the pair is already overextended.
