Dollar rebounds as markets reprice ahead of CPI

Despite the jump in the US unemployment rate, the dollar is now turning higher after that initial push lower yesterday. This tells me that cut expectation with the data, are already priced in, and we are now seeing some position readjustment ahead of US CPI tomorrow. Also, with a full week of important events, it’s almost impossible to define just one clear FX direction, and this kind of two sided price action is very typical in such an environment.

It’s also the last “normal trading” week of the year, so this behavior makes sense. Liquidity is starting to thin, more traders are off loading positions, and many are already shifting focus towards the holidays rather than committing to fresh directional trades.

From EW perspective, it’s possible that DXY is starting a turn higher, potentially unfolding as a zig zag rally. Initial resistance is around 98.76, but if this is only wave a, then higher levels could still follow. At the same time, EURUSD may be starting to drop lower, possibly looking for wave E within a larger triangle structure.

Additionally, EURUSD pair made a deep pullback from September highs, despite the fact that the Fed cut rates for the first time in a while. But drop has the overlapping decline, so it could still be a corrective move, and it's not a surprise we saw stabilization at around 1.15 area as part of wave (C), which may belong to a higher-degree complex fourth-wave triangle. It seems that this pause could still be part of a prolonged correction from July, meaning it may take more time before it finally comes to an end. So, seems like we are in a new swing up, ideally for wave (D) that can stop now at 1.1780 - 1.1820 resistance zone, so we should be aware of wave (E), especially if pair drops out of a channel.

Thanks for reading, and see you on the next one!
GH