The US Dollar (USD) is facing headwinds as it looks that its months-long rally has officially halted.

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From a pure technical point of view, the weekly chart of the US Dollar Index (DXY) shows that the US Dollar Index has been trading sideways for the last three weeks. According to the Wyckoff Trading philosophy, the US Dollar Index is in a distribution phase ahead of either a substantial leg higher or lower. 

On the economic data front, traders will have a light Monday ahead of other data points later this week. The focal point will be on Thursday, when the US Gross Domestic Product (GDP) numbers for the third quarter are due to come out. On Friday, the Federal Reserve preferred inflation gauge will be published: the Personal Consumption Expenditures Price Index. 

Daily digest: US Dollar between a rock and a hard place

• The delay of the Israeli ground offensive is holding markets in a choke hold as investors could see a risk premium being factored in for yet a proxy war to develop.
• One data point for this Monday at 12:30 GMT is the Chicago Fed National Activity Index for September. Previous print was at -0.16. 
• The US Treasury is heading to the markets again with a 3-month and a 6-month bill auction at 15:30 GMT. 
• Equities are starting the week in the red. Asian indexes fall by near 1% and European equities are down around 0.50%. US equity futures are looking for direction ahead of a new week of earnings. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 98.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield trades at 4.98%, just a sigh away from 4.99%, the multi-year high. The bond market is still stuck in a sellers market, where higher yields are demanded before buying US bonds. 

US Dollar Index technical analysis: Going nowhere

The US Dollar dropped the ball last week and closed in the red, proving to the second-guessers that the DXY summer rally is behind us. For October, the Greenback has not really moved that much and despite geopolitical tensions, more convictions are starting to build in the market that the US Dollar might rather go down. All eyes will be on the 106.00 level, which could start to see substantial breakthroughs to the downside if US economic data start to deteriorate. 

Should the DXY want to deliver a bullish signal, at least the high of last week at 106.67 needs to be broken. Preferably a re-enter above the summer rally trend line would support further upside moves. On the topside, 107.19 is an important level to reach. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that fails to do the trick, 104.33 will be the best level to look for resurgence in US Dollar strength, as it aligns with the 55-day Simple Moving Average (SMA) as a support level. 

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