The Dollar’s Path Through the Final Trading Week of 2023
Charting the Course: EUR/USD and the Battle at 1.1000
The greenback was on the retreat last week, with the Dollar Index (DXY) finishing at 101.70, which is the lowest dip since July 2023. The dollar drop was exacerbated by the Fed’s monetary policy pivot, which now makes rate cuts in early 2024 an almost sure thing.
The Fed’s preferred inflation gauge, the core Personal Consumption Expenditures Index (PCE) rose by just 0.1% compared to the forecast of 0.2%. This reinforced the Federal Reserve’s shift in the rate approach, further increasing the probability of rate cuts.
The Week Ahead
As most of us expected, this week lacks any impactful economic releases due to the celebration of the Winter Holidays across the globe. This lack of activity on the economic and political scene could mean that the current moves may extend further since there’s nothing that can reverse them.
On the other hand, the lack of liquidity could spark some irregular volatility because trades that would otherwise be considered low or average in size may have an increased impact. This means that reversals could also happen more easily. Either way, caution is strongly advised.
Technical Outlook – EUR/USD
The pair is testing the resistance at 1.1000 for the second time in two weeks and for the third time in about a month. It looks like the bulls have managed to creep above this key level but it remains to be seen if the break can be sustained and more importantly, if it’s even a true break and not a fake out.
The Relative Strength Index was showing bearish divergence even on the second touch of 1.1000. Now it is still making a lower high while the price is making a higher high, thus it is still showing divergence, which warns that a drop is coming.
A bounce from the current level could indicate that the pair is headed towards the 50-day Moving Average. However, keep a look out for irregular volatility and sudden moves.
