USD Index On Verge Of Correction

The early-October fundamentals are turning negative on the USD Index. This week has brought several sub-par economic reports from the manufacturing and employment sectors, spiking investor angst. The dreaded r-word, “recession,” is being floated repeatedly by the financial media, furthering negative sentiment. As Q4 2019 gets underway, there is a bulk of uncertainty facing stocks, commodities, and the Greenback.

For the USD, the challenging environment is expected to lead to deeper FED rate cuts. Here is a quick look at the CME FEDWatch Index and the current probabilities for further 2019 reductions in the Federal Funds Rate:

• At the 30 October meeting, there stands a 72.2% chance of a ¼ point rate cut.
• In December, the picture becomes blurred. There currently stands a 36.2% chance of a ½ point cut from current levels and a 49.9% chance of rates being reduced by ¼ from current levels. The probability of rates staying at current levels is a modest 13.9%.

So, interest rates are expected to come down by at least another ¼ point by year’s end. This is quite a shift from last week’s storyline of the summer rate cuts being “mid-cycle adjustments.” For the USD Index, new projections for more FED easing have values in a position to tumble.

USD Index On The Verge Of Correction

The technical outlook for December USD Index futures is fairly straightforward. The daily uptrend is under fire and in a position to retrace.

Bottom Line: For now, the key number in this market is the 38% Current Wave Retracement (98.760). Should this area of support give way, a rapid selloff is likely given the evolving fundamentals.

As long as the Swing High (99.305) remains the top of this market, I will have sell orders in the queue beneath Tuesday’s low at 98.695. This is a longer-term position trade, with an initial stop at 99.330 and profit target at 98.060.