USD Index On Verge Of Correction - Forex News by Strategia Forex
USD Index

USD Index On Verge Of Correction

Posted Wednesday, October 2, 2019 by
Shain Vernier • 2 min read

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.

December USD Index Futures (DX), Daily Chart
December USD Index Futures (DX), Daily Chart

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.

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About the author

Shain Vernier // US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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