The third quarter closed with a bang in the Greenback as the currency surged in its final month and, more specifically, the final week of the final month to set a fresh two-year-high. The month of July was particularly strong and buyers held the bid through August and early-September. During this time, the Fed cut rates twice, the first moderation from the bank since the 2008 Financial Collapse, but this seemed to matter little as a fresh QE package from the Euro-zone was announced to go along with very dovish postures at pretty much every large Central Bank around-the-world.

Coming into Q4 the US Dollar is nearing some very interesting resistance with the 100 level on DXY clearly in-sight.

US DOLLAR MONTHLY PRICE CHART

(Click on image to enlarge)

Chart prepared by James Stanley; US Dollar on Tradingview

Getting a bit closer on the chart and Daily RSI is currently showing as overbought following this late-quarter rally. This can make the prospect of chasing, particularly considering the nearby resistance, a challenging scenario.

US DOLLAR DAILY PRICE CHART

(Click on image to enlarge)

Chart prepared by James Stanley; US Dollar on Tradingview

FED IN THE SPOTLIGHT FOR OCTOBER RATE DECISION

That bullish move in the USD through Q3 showed in an almost begrudging manner and, as mentioned earlier, took place amidst a backdrop in which the Federal Reserve cut rates twice during Q3. These were the first such moves since the Financial Collapse but they were so widely-telegraphed that few traders were actually surprised by the moves. Thickening the drama, the Fed, at this point, has refused to highlight any future cuts or moderation, instead chalking up these two most recent moves as ‘mid cycle adjustments.’

This begs the question as to whether another outlay sits in front of us that resembles Q4 of last year, when in the opening days of the new quarter, Chair Powell came off considerably more-hawkish than what market participants were looking for. This led to a quarter of pain on the charts as S&P 500 futures moved down by as much as 20%, finally catching a bid on Christmas Eve that carried price action higher through April trade.

At this point, the S&P 500 remains in a tepid spot after failing to push up to fresh highs after the most recent rate cut. Given the considerable Fed-speak that remains on this week’s economic calendar, this theme could certainly see some interest this week and as the October rate decision approaches at the end of October.

S&P 500 FOUR-HOUR PRICE CHART

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Chart prepared by James Stanley; SPX500 on Tradingview

WHICH OTHER CURRENCIES FOR STRENGTH?

One of the primary complications with strategies around USD-weakness at the moment is the simple dearth of attractive pairing options. Europe has an incoming stimulus program, and the Bank of Japan appears happy to continue with their own loosening strategies, meaning two of the largest currencies in the world are being actively-backed by regimes of weakness. The US Dollar, however, is being represented by a Federal Reserve that seems to want to store some dry powder in the event that they have to get more active down-the-road.

One potential option for USD-weakness is USD/CAD. The Canadian Dollar had a rollercoaster Q3 and, at this point, CAD-strength continues to show some potential in the pair. The BoC has yet to talk up rate cuts or softening, putting them as one of the lone Central Banks that is and has been standing pat. If a bearish reversal does develop in the US Dollar, USD/CAD can remain as one of the more attractive spots to look for that weakness to price-in.

USD/CAD FOUR-HOUR PRICE CHART

(Click on image to enlarge)

Chart prepared by James Stanley; USDCAD on Tradingview