DXY Declines on Quiet Monday as Markets Await Catalysts

The US Dollar Index (DXY) has retreated below the 107.00 mark after profit-taking following the sharp gains in the greenback earlier in November. The index is trading at 106.79. Despite the recent decline, the index remains bullish thanks to strong economic data and a less dovish stance from the Federal Reserve. Additionally, geopolitical tensions, especially from the Russia-Ukraine war, have recnetly helped boost the US dollar.

Profit-Taking Pressures US Dollar Lower

The US Dollar Index retreated from its fresh two-year high on Friday, softening towards 107.00. The current market environment has seen investors taking profits after the significant rallies experienced in November. With the US calendar not featuring any major highlights on Monday, the market awaits further drivers.

Impact of Trump’s Proposed Policies

Expectations for a lower US corporate tax rate and a wave of deregulation under Trump’s proposed policies are anticipated to boost foreign portfolio and foreign direct investment (FDI) flows to the US. These policy changes are expected to prolong the Federal Reserve’s restrictive policy stance, further supporting the US Dollar.

Economic Outlook and Key Data Releases

The robust US economy continues to outperform other advanced economies, with higher real interest rates predicted due to the favorable productivity landscape. For the rest of the week, investors will focus on key economic data releases, including Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) figures on Thursday and Friday, which could significantly impact the US Dollar’s trajectory. Additionally, Jobless Claims data on Thursday will be closely watched.

Technical Outlook: Consolidation and Bullish Bias

From a technical perspective, the US Dollar Index appears to be in a consolidation phase due to overbought conditions. Indicators such as the Relative Strength Index (RSI) have eased from overbought levels, and the Moving Average Convergence Divergence (MACD) histogram is contracting. Despite this consolidation, the overall bullish trend remains intact, with key resistance at 108.00 and support in the 106.00-106.50 area. Maintaining this support area is crucial for bulls to preserve the bullish momentum.

While the US Dollar has experienced a slight pullback due to profit-taking, the overall bullish sentiment remains strong, driven by robust economic data, geopolitical factors, and the anticipated effects of Trump’s policy proposals. As the market looks forward to key economic data releases later in the week, the direction of the US Dollar will be closely monitored by investors. The consolidation phase suggests a possible continuation of the bullish trend, provided key support levels are maintained.