Dollar Bulls Not Out Yet Amid DXY Index Bullish Outside Engulfing Bar

The US Dollar (via the DXY Index) turned sharply higher at the start of the week, boosted by the worst loss by GBP/USD in over two-years. Now that the Brexit vote for today has been canceled, fears of a 'hard Brexit' or 'no-deal Brexit' have been revived. With the EU seemingly unwilling to renegotiate a deal, the dichotomy at present time truly may be May's way or the highway.

The next steps forward could still prove perilous for the British Pound. For UK PM May, a no-confidence vote seems likely, and if the prime minister falls, then a general election could ensue (Tory infighting is proving counterproductive). Otherwise, if May survives, now that European Court of Justice has ruled it’s legally feasible, it’s possible that a May-led revokes Article 50 and proceeds with a second referendum.

A no-deal Brexit - or no Brexit at all, after a second referendum - is very possible. Two-way volatility in the British Pound should remain elevated for the near-future. To be clear, trading the British Pound at present time is no different than rolling dice in a casino: good luck with that gamble.

The fact of the matter is that the turn for the worse in the Brexit negotiations serve as a bullish catalyst for the DXY Index, even if the US Dollar's own fundamentals sour against it (the Fed's 2019 rate expectations have been trending lower). Data in recent weeks has been generally disappointing, with the US Citi Economic Surprise Index falling back from its Q4'18 high of +14.0 on November 16 to -5.6 today.

While the US economic calendar is light for the rest of the North American trading session, focus will be on the upcoming November US Consumer Price Index report due out on Wednesday. Inflation data for November will show that both measures of the US CPI remain above the Federal Reserve’s medium-term target of +2%, even as the headline figure is exhibiting disinflation. The inflation report on Wednesday will only enhance expectations that an adjustment away from the preset policy course is coming next week.

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Disclosure: Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment ...

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