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DXY opens higher in APAC trading

All major currencies closed the week on the back foot. The largest decline against the US dollar was seen in the Swiss franc (-1.60%). Smaller decreases were posted by the Australian dollar (-1.18%), the New Zealand dollar (-1.06%), the euro (-0.71%), the British pound (-0.69%), the Canadian dollar (-0.65%), and Japanese yen (-0.09%).

The EURUSD pair slipped 0.34% to 1.1725 on Friday, September 17. The dollar continued to draw strength from US retail sales data released on Thursday, which solidified expectations that the Fed could start tapering stimulus by year-end. Upward momentum intensified near the close after a new spate of macro data came out stateside. In the upshot, the DXY index surged to 93.23, and US 10-year bond yields widened to 1.385%.

The University of Michigan Consumer Sentiment Index for September rose to 71, up from 70.3 in August. The median forecast called for 72.

Traders were reluctant to launch new positions ahead of a number of key central bank meetings scheduled for this week, including the Fed, the Bank of Japan and the Bank of England. Investors expect that discussions will begin on September 21-22 about reducing monthly bond purchases.

Today’s macro agenda (GMT+3)

  • 14:00 US: NAHB housing market index (September)

Current outlook

In Asian trading, the US dollar continues to advance on all fronts, with the DXY rising to 93.35. Risk aversion set in at the opening. There are several factors putting pressure on major currencies:

  • Chinese real estate giant Evergrande looks set to default on bonds. In Hong Kong, the company’s shares plunged by up to 17% in morning trading. The government is in no hurry to intervene.
  • Uncertainty remains over stimulus measures and changes in the US debt ceiling. Unless Congress raises the debt limit, a government shutdown could be in the cards.
  • US Senator Manchin has postponed a vote on President Joe Biden's social-spending package until 2022.
  • The political crisis in relations between France and the US. The crisis will affect the definition of NATO's new Strategic Concept.
  • Relations between the United States and China have deteriorated due to a military alliance between Australia, the United Kingdom, and the United States (AUKUS). No progress has been made in trade negotiations.

Technical analysis

The 10-year bond yield is in decline this morning even through the DX moved higher – a negative factor for the dollar. All major currencies are trading in the red. The EURUSD pair reached the 112-degree angle of the Gann fan during Asian trading.

Price action bounced off the lower bound of the 55-day SMA (balance line) on Friday. Over 11 trading days, the price fell by 1.67% or 199 pips (2 figures). Bullish divergence has formed between the price and the AO indicator. As the indicators show, the conditions for an upward correction have been met. Whether or not buyers will be able to muster a correction depends on the tone of incoming news. Key support is located at 1.1615 (monthly TF). If buyers fail to hold that level, times will be tough for euro buyers. In that case, price action is likely to retrace to 1.12 by year-end.

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