10.10.202215:08 Forex Analysis & Reviews: DXY: Short-term forecast

Taking into account today's holiday in Japan, the USA, and Canada, and exchanges and banks in these countries are closed, it is hardly worth expecting strong movements in the market. It is likely that the amplitude of fluctuations in the quotes of the major currency pairs today will remain within the limits achieved during today's Asian trading session.

Meanwhile, the dollar continues to restore its positions in the foreign exchange market and return the losses incurred earlier. As of writing, DXY (reflected as CFD #USDX in the MT4 trading terminal) is near 112.95, in close proximity to the "round" resistance level of 113.00, the breakdown of which, apparently, is not far off.

Despite a fairly strong correction (DXY fluctuation range over the past 2 weeks amounted to 4.34%), the upward dynamics of the dollar remains, pushing the DXY towards more than 20-year highs near 120.00, 121.00. The breakdown of the 113.00 resistance level mentioned above will be a signal that the dollar and the DXY index will return to growth.

Today, the publication of important macro statistics is also not panned, but it is worth paying attention to the speeches (at 13:00, 17:35 GMT) by Fed representatives Charles Evans and Lael Brainard.

The Fed leadership, as it has repeatedly stated, intends to continue to tighten monetary policy, actively raising interest rates in order to curb high inflation, which does not want to decline. The likely leitmotif of their speeches today will be about the need to further increase interest rates. This, while not much of an impact on markets that have already priced in a Fed rate hike above 4.0% this year, will confirm dollar buyers right. But if they talk about the possibility of a pause or slowdown in this cycle of Fed tightening, then the dollar may again react lower.

The focus of market participants, especially those who follow the dollar quotes, this week will be the publication on Wednesday of the protocols from the September meeting of the Federal Open Market Committee ("FOMC minutes") and on Thursday—consumer price indices in the US. The publication of the minutes is extremely important for determining the course of the current policy of the Fed and the prospects for raising the interest rate. The volatility of trading in financial markets during the publication of the protocol usually increases, since the text of the protocol often contains either changes or clarifying details regarding the results of the last Fed meeting. The harsh rhetoric of the Fed leaders regarding the prospects for monetary policy will push the dollar to further growth. The level of influence on the markets can be very high, especially if the protocols contain unexpected information.

So, as noted above, the breakdown of the 113.00 resistance level will be a signal that the dollar and the DXY index will return to growth.

In an alternative scenario, the first sell signal will be a breakdown of short-term support levels 112.30 (200 EMA on the 15-minute CFD #USDX chart), 111.94 (200 EMA on the 1-hour chart).

Their breakdown, in turn, may provoke a deeper correction to the support levels of 110.60 (200 EMA on the 4-hour chart), 109.75 (50 EMA on the daily chart). Below is unlikely.

Support levels: 112.30, 111.94, 110.60, 109.75

Resistance levels: 113.00, 114.00, 114.74, 115.00