USD Index: One last dip before a run to the century mark?

If you had to pick a day to press the snooze button on your alarm an extra time or two, today would have been a great choice. The only particularly meaningful data over the last 24 hours was China’s Consumer Price Index (CPI) reading for October, which came in cooler than expected at 1.3% year-over-year vs. 1.5% eyed. Meanwhile, today’s US economic calendar is essentially barren as well, with only Wholesale Inventory data at 10:00 ET to “look forward to.”

The slow day for economic data gives us an opportunity to step back and put the recent rally in the US dollar into perspective. After consolidating in a lackluster range from 93.50 to 98.00 for a full six months, the widely-followed US dollar index has broken out to the topside on the back of hawkish Fed comments and a stellar Non-Farm Payroll report last Friday.

Last week’s breakout is undeniably impressive, but the index is now in oversold territory on the RSI indicator for the first time this year. The MACD indicator continues to trend higher above both its signal line and the “0” level, signaling strongly bullish momentum, but that doesn’t mean the dollar won’t see a short-term dip.

From a fundamental perspective, there is little in the way of traditional US economic data until Friday’s retail sales data, but we will have a veritable motherlode of Fedspeak on Thursday, with six different Fed policymakers (Yellen, Bullard, Lacker, Evans, Dudley and Fischer) all delivering comments. Traders will be eager to see whether the central bankers present a unanimous front on the likelihood of interest rate hikes in December, as well as the likely path of monetary policy moving forward. With even uber-dove Chicago Fed President Charles Evans noting yesterday that he would rather wait to raise interest rates but would not dissent against a December hike, such a move is starting to seem like a done deal.

For traders who missed the initial breakout in the dollar, we could see a short-term dip to the previous breakout area in the 98.00-50 zone, but given the bullish technical and fundamental picture, buyers may step in quickly to defend that zone. As more and more traders start pricing in a December rate hike, the dollar index could easily rise back toward the century mark (100.00) over the next few weeks.