US Dollar Index Rallies with Eyes on Mean Reversion of 50% and Above

• Dollar bulls stand at key support and eye a 50% median reversal.
• Risk tones are helping the safe-haven dollar ahead of key data and FOMC Minutes.

The dollar, measured by the DXY index, it is up 0.85% at the time of writing. The index, which measures the US dollar against a basket of currencies, is correcting a small part of November’s selling and is on track to break above 108 after hitting a high of 107,993. The catalyst for this move can be partly attributed to a risk-off start to the week due to further COVID-19 cuts in China, which have fueled concerns about the global economic outlook.

Boosting the dollar, new cases and warnings from health officials to the government have cast doubt on hopes that the government can soon ease its tough restrictions.

The dollar’s rebound comes after strong selling in recent weeks, which sent the DXY Dollar Index down as much as 4.7% in November. Speculators’ net long positions in the dollar index have eased moderately as the market slumped on the back of softer-than-expected US CPI inflation data. In addition, net long positions in the euro continued to grow and are now three times their mid-October levels, leading to corrections in the euro that support the prospects for a recovery in the dollar, which continues to rise 12% in the year.

The FOMC Minutes in the spotlight

For next week, the Fed minutes will shed light on the FOMC’s deliberations regarding the expected slowdown in rate hikes. That being said, policymakers will also stress that the terminal rate is likely to be rising versus earlier expectations as the labor market remains too tight. Data-wise, we expect the manufacturing PMI to pull back modestly, holding above the 50 level in November,” they said. TD Securities analysts.

technical analysis of the dollar

The DXY Index has begun to correct previous bearish daily momentum and is heading towards a 50% mean reversal of the last leg of the M formation. However, if resistance from the countertrend line and the neckline of the M pattern hold, the downtrend will remain in focus and the 104.70 level could be tested.