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The US Dollar continues to March higher on Tuesday with DXY now at its highest level in a year. The rally is being fuelled by a relentless rise in yields on the back of the Fed’s recent tightening signal. At the September FOMC meeting, the Fed warned that rates would likely need to be increased again during this cycle and are expected to stay at elevated levels for longer than initially thought. The outlook was a firm pushback against those calling for early 2024 rate cuts and the market has since swiftly repriced its US rates view. Despite the market being in a net-long USD position, volumes are still not at overstretched levels suggesting there is plenty more room to run in the current rally.
 

US Labor Data Due Friday

Looking ahead this week, the next focus point for traders will be the incoming US labor reports on Friday. With the Fed citing the resilience of the US economy as one of the key drivers behind the shift in its outlook, traders will be looking to see how the labor market held up last month. If indicators remain strong, this will reinforce the Fed’s outlook keeping USD well supported near-term. Wages in particular will be a key input to monitor with any strength there likely to feed into upside inflation fears. Alternatively, if the NFP is seen undershooting forecasts on Friday this will likely cause some pause in the current USD rally.
 

Technical Views

DXY

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The rally in the Dollar Index has seen the market breaking out above the 104.95 level with price now almost 8% up off the YTD lows. With the rally still well supported, reflected in firmly bullish momentum studies readings, the outlook remains focused on further upside near-term. 107.57 is now the key hurdle for bulls to overcome, with a break of this level opening the way for a move up to 109.18 next.  

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