US Dollar reverses its course and clears daily losses, focus shifts to Fed’s decision

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• The US Dollar is trading soft against its rivals and seems to be consolidating the last session’s gains.
• The Core PCE from September matched expectations at 3.7% YoY.
• The US bond yields are mixed, while dovish bets on the Fed remain high.
• Focus now shifts to next week’s Fed decision.

The US Dollar (USD) measured by the US Dollar Index (DXY) declined to 106.35, near the 20-day Simple Moving Average (SMA), and then recovered towards 106.60. Datawise, Personal Consumption Expenditures (PCE) figures from September showed no surprises, and investors seem to be taking profits after three consecutive days of gains.
 
The United States economy is holding strong, as seen in the last set of economic activity figures, which included a preliminary estimate of the Q3 Gross Domestic Product (GDP) rising at an annualised rate of more than 4%. Investors now set their sights on next week’s Federal Reserve (Fed) decision on the first day of November to gather further clues on the bank’s next steps.

Daily Digest Market Movers: US Dollar declines as PCE decelerated in September, yields mixed 

• The US DXY index fell to a daily low towards 106.35 after gaining nearly 1% in the last three sessions. During the American session, the index jumped back towards 106.60 clearing part of the daily losses.
• The US Bureau of Economic Analysis reported that September’s headline PCE Price Index matched the expected value. It came in at 3.4% YoY vs the expected 3.4% and showed no changes regarding its last figure of 3.4%. The Core figure came in at 3.7% YoY, vs. the consensus of 3.7% and decelerated from its previous figure of 3.8%, which was revised lower.
• Other data showed that the Michigan Consumer Index came in higher than expected at 63.8 vs the 68 expected but failed to trigger a significant reaction from the Greenback.
• In the meantime, US Treasury yields are mixed. The 2-year rate stands at 5.03%, and the 5 and 10-year yields are at 4.79% and 4.85%, respectively.
• For next week’s Fed’s decision, markets have practically priced in a pause, but the monetary policy statement and Chair Powell’s words will be closely watched to position for the next  meeting in December.
• According to the CME FedWatch Tool, the odds of a hike in the year’s last meeting declined to nearly 20%. 

Technical Analysis: US Dollar Index bulls must defend the 20-day SMA to keep rising

Based on the daily chart, the technical outlook for DXY Index remains neutral to bullish as the bulls gathered significant momentum in the last sessions. To keep it, they must defend the 20-day Simple Moving Average (SMA) at 106.35. 

Meanwhile, the Relative Strength Index (RSI) has a negative slope above its midline, while the Moving Average Convergence Divergence (MACD) indicator prints stagnant red bars. Furthermore, the pair is above the 20,100 and200-day SMAs, indicating a favourable position for the bulls in the bigger picture.

Supports: 106.35 (20-day SMA), 106.00, 105.70.
Resistances: 107.00, 107.30, 107.50.