DXY: Scope for additional weakness to the mid/upper 103s – Scotiabank

The USD is trading broadly lower to start the week. Economists at Scotiabank analyze the US Dollar Index (DXY) outlook.

Minor rallies will attract sellers

Generally lower US yields, greater conviction that the Fed tightening cycle is done and earlier pricing in of the Fed’s first rate cuts worked against the USD last week and will continue to weigh on USD sentiment for the foreseeable.

Last week saw a clear, technically bearish reversal in the DXY to complement the bearish price action we saw in early October. The top in the DXY rally coincides very closely with major, medium-term retracement resistance at 107.20.

DXY losses through the late October low at 105.40 add to the bearish technical tone and imply scope for additional weakness to the mid/upper 103s in the next few weeks.

The swift drop in the USD last week did leave a gap on the chart which, in theory, will have to be filled. But short-term USD gains in the index back to the 106.50 level are liable to attract renewed selling pressure as investors look to shift positioning on the USD.