US Dollar stays flat, downplaying China concerns after end of Golden Week

• The US dollar remains flat as US stocks take a positive tone.
• Chinese markets are back in business after closing for Golden Week, unleashing an increase in volatility.
• The US Dollar Index is trading above 102.00, looking for direction with a small drop still present.

The US Dollar (USD) is trying to shake off the small decline that attempted to pressure the Dollar for the second day in a row after investors welcomed China back to the markets. It’s not a warm welcome, with China’s Hang Seng 300 index down more than 9% at the close. There is a rise in risk aversion, with European stocks also on the defensive.

The economic calendar is light and should not create major waves on Tuesday, with the goods trade balance and the economic optimism index not expected to be market moving factors. However, comments from Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Vice Chairman Phillip Jefferson could be.

What moves the market today: The US trade deficit is reduced

• China has reopened again after a week of Golden Week festivities. The festive mode has faded quickly, with the Hang Seng Index correcting close to 10% at the close. The negative reaction spread to European markets and widespread risk aversion.
• At 10:00 GMT, the National Federation of Independent Business (NFIB) published its Business Optimism Index for September, which rose to 91.5 from 91.2 in August, below economists’ expectations of 91.7. .
• The Goods and Services Trade Balance data for August revealed a larger-than-expected deficit recovery. The current figure was -$70.4 billion versus the previous deficit of -$78.8 billion and better than the expected estimate of -$70.6 billion.
• The TechnoMetrica Institute for Politics and Policy will publish the Economic Optimism Index for October at 14:00 GMT. A small increase is expected to 47.2, from 46.1, although indicating continued consumer pessimism.
• At 16:45 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic (FOMC voting member in 2024) will speak about the US economic outlook at the Atlanta Consular Corps luncheon. At 22:30 GMT, Federal Reserve Vice Chairman Phillip Jefferson (FOMC voting member in 2024) will speak at an event hosted by Davidson College in Davidson, North Carolina.
• European stocks are off their lows, although still trading in the red, while US stocks are set to start the trading session in the green.
• The CME’s Fedwatch tool shows an 88.7% probability of a 25 basis point (bps) interest rate cut at the next Fed meeting on November 7, while 11.3% do not expect a cut of rates. The chances of a 50 bps rate cut have been completely ruled out now.
• The US 10-year benchmark rate is trading at 4.05%, the highest level since mid-August.

US Dollar Index Technical Analysis: A Small Drop After All

The US Dollar Index (DXY) is declining a bit for the second day in a row. Last week’s strong rally is seeing some profit taking for the second day in a row. The fact that the US Dollar cannot gain more even with the risk-off tone from Asia could mean that a short squeeze has been completed and could see a slow decline from here.

The psychological level of 103.00 is the first level to address on the upside. Higher up, the chart identifies 103.18 as the final level for this week. Once above there, a very volatile area emerges, with the 100-day SMA at 103.32, the 200-day SMA at 103.76, and the crucial 103.99-104.00 levels in play.

On the downside, the 55-day SMA at 101.99 is the first line of defense, supported by the round 102.00 level and the crucial 101.90 as support to trap any bearish pressure and trigger a bounce. If that level doesn’t work, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before further declines. Finally, and that means giving up the big 100.00 level, the July 14, 2023 low at 99.58 comes into play.

Dollar Index: Daily Chart