The US dollar index continues to remain trading flat within the range of 96.00 and 94.00 after the buck posted a strong reversal off the 97.00 – 97.50 handle in late July. With the Federal Reserve opting to keep rates unchanged at its meeting last week, the status quo is likely to continue well into the fourth quarter this year with the Dollar Index expected to remain flat. With the Fed likely to step aside from the limelight, the US dollar will be looking to how the landscape on the US presidential elections will shift over the coming weeks ahead of the November general elections.
First Presidential Debate: Trump vs. Clinton: 0 – 1
As the first US presidential debate got underway yesterday, the dollar came under pressure with the pre-event jitters. While both the presidential candidates sparred over various topics, the broad reaction to the debate was that Clinton managed to gain the upper hand. Candidates debated on tax cuts, jobs among other things with Trump sticking to his hardline stance talking about losing jobs to Mexico and maintaining that China was a currency manipulator.
Among the two candidates, Clinton is being seen by many as the ideal candidate to maintain the status quo, which is more likely to be welcomed by the financial markets than an “unpredictable” Trump.
Summarizing on the first presidential debate, Politico website said, “Throughout, Trump stuck to knocking Clinton as a predictable, talking-point driven, lifelong politician”
The Mexican peso came under pressure briefly as USDMXN posted a new all-time high near 19.866 before the dollar weakened in today’s session. At the time of writing, USDMXN is currently down over 1.71% on the day, trading at 19.526. Further downside could see the previous resistance level at 18.926 being retested for support.
Ray Attrill, head of currency trading at National Australia Bank, said “the gains in currency’s like the peso might have just been short-covering as investors took profits on short positions” and caution that further polling on the debate could show that Clinton was not the decisive winner, which could pose some risk of further market volatility.
US economic data gathers pace
After a rather slow and lackluster start to the week, the US economic calendar picks up steam with the US durable goods orders coming up on Wednesday. With lower than expected aircraft orders in August, expectations are tame as the headline durable goods orders data is expected to fall 1.0%, following a 4.40% increase previously.
Fed Chair, Janet Yellen will be giving a two-day testimony stating Wednesday which is more likely to impact the US dollar in the short term. Investors will be clued in, to look for any new comments from Yellen after the central bank kept rates steady. For the moment, the markets expect the next rate hike from the Fed likely in the December FOMC meeting.
Backward looking final GDP revision is also on the tap this Thursday with expectations of a 1.30% gain, slightly higher than the previously reported 1.10% quarterly growth.
US Dollar Index – Mind the ascending triangle
The daily chart for the US dollar index shows a potential ascending triangle pattern currently taking shape. The resistance is seen at 96.00 – 96.30. A breakout above this resistance could see further upside in the dollar towards July highs of 97.60 – 97.35 being retested.
There are no indications at this point that we will get to see further gains in the greenback. To the downside, failure to breakout from the resistance level could put the dollar index biased to the downside. Horizontal support at 95.00 remains a key level for now, having been tested multiple times. A breakdown of prices from this level could see the dollar index potentially falling to the lower support at 93.30 – 93.00.
