DXY: Biased for a downside play – OCBC

The US Dollar (USD) slipped in quiet trade overnight. US data was mixed as prelim manufacturing PMI and services PMI continued to diverge. DXY was last at 106.97 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Head and shoulders pattern remains intact

“Data focus this week on retail sales, IP (Tue); housing starts, building permits (Wed); GDP, existing home sales (Thu); core PCE, personal spending, income, Kansas City Fed manufacturing index (Fri). The bigger focus is on FOMC meeting this Thu (3am SGT).”

“A 25bp cut is more or less a done deal but the focus is on the refreshed dot plot, which will provide guidance on Fed members’ expectation on rate cut trajectory into 2025 - 26. The previous dot plot back in Sep guided for 4 cuts and markets are now pricing in about 2 cuts for 2025. This risk is the dot plot showing fewer than 2 would be interpreted as hawkish and USD can strengthen on that.”

“Daily momentum is flat while RSI fell. Head and shoulders (H&S) pattern remains intact with DXY rejecting the second shoulder. We continue to watch price action. A play-out of the H&S pattern requires a decisive break below neckline support. Next support at 106.20/50 levels (23.6% fibo, 21 DMA), 105 levels (38.2% fibo retracement of Sep low to Nov high, 50 DMA). Resistance at 107.20 (both shoulders), 108 (2024 high).”