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Everything is rising, but logic is missing, the dollar’s paradoxical moment
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Hello everyone, today XM Forex will bring you "[XM Forex]: Everything is rising, but logic is absent, and the paradoxical moment of the US dollar". Hope this helps you! The original content is as follows:
On Tuesday (October 21), the U.S. dollar index traded below 99 during the North American session. The current macro clues are not neat, and the market is paying attention to the U.S. September CPI to be released on Friday and the Federal Reserve interest rate decision next week. Bond yields have fallen significantly in recent times, and the equity market has not been significantly under pressure.
Fundamentals
Recently, the historical correlation between global assets has been misaligned: the traditional chain of "rising risk appetite - falling bonds, falling gold, and rising/falling U.S. dollar differentiation" has been disrupted, evolving into "risk assets and safe-haven assets rising together." There are at least three possible paths at work behind this: (1) the reallocation of some central bank reserves and sovereign funds, driving simultaneous buying of gold and high-grade bonds; (2) the private sector's rebalancing of duration and defensive assets before the interest rate downward channel; (3) momentum and follow-up drives up the "price-first" cross-asset resonance. For the U.S. dollar, this means that the three traditional supports of "interest spreads, hedging, and liquidity" have not xmaccount.completely collapsed: the nominal and real yields in the United States have fallen, which should have suppressed the U.S. dollar; but when overseas growth momentum is generally weak, terminal interest rates in Europe and the United Kingdom are difficult to raise, and risky assets are fluctuating at high levels, the "passive demand" for the U.S. dollar as a global settlement and financing currency is still there.
The narrative surrounding the “currency devaluation trade” is ebbing. The so-called simple script of "fiscal expansion + resurgence of tariff-driven inflation → medium-term weakening of the U.S. dollar" is currently not supported by the two major bond and foreign exchange markets: U.S. bond yields are falling, and the foreign exchange market is not pricing in a rapid depreciation of the U.S. dollar. The key to inflation lies in structure rather than slogans: if "perceived inflation" driven by food and energy is higher than core indicators, the market will be less receptive to interest rate cuts, and the dollar will weaken due to "concerns about policy credibility";On the other hand, if the inflation reading is mild and the Fed emphasizes "data dependence + gradualness", then "lower interest rate spreads but predictable policy" is a neutral-to-weak xmaccount.combination for the US dollar, which usually leads the US dollar to see-saw around key technical levels rather than unilaterally.
In terms of timing:
Friday: The market generally expects US CPI to be about 0.4% month-on-month and core 0.3%. If the reading is "acceptable", the dollar may continue to be "strong but not violent" in its structural resilience; if the reading raises questions about whether it is too early to cut interest rates, policy trust will be frustrated.
Next week: If the Fed meeting implements further easing, and if the wording emphasizes "continue to observe", the impact on the US dollar will depend on whether the dot plot and forward guidance weaken the neutral interest rate differential - once overseas central banks become more dovish, the US dollar's relative advantage may still be retained.
In the cross-currency dimension, the Japanese yen is still constrained by interest rate differentials and arbitrage funds, and will only have stronger counterattack capabilities when the real yield rate in the United States accelerates its downward trend; the Swiss franc is more sensitive to risk appetite, and once global risk aversion heats up, the Swiss franc will be more likely to receive marginal support relative to the US dollar; European and British currencies are driven by the different softness and hardness of local growth and inflation, and it is difficult to contribute to systemic pressure on the US dollar in the short term. Overall, the U.S. dollar's "fall but not fall" is the result of multiple contradictory forces.
Technical:
The daily chart shows that the U.S. dollar index is in a moderate upward rhythm within the Bollinger Bands. The physical K-line still stands above the Bollinger middle rail of 98.1390, indicating that the short-term bull trend has not been destroyed; the Bollinger upper rail of 99.5666 almost coincides with the near-end peak of 99.5549, forming the first "kinetic energy-price" resonance resistance. Once it is effectively broken, the price will face the vacuum range of 100.2599. On the downside, Bollinger's lower track of 96.7114 and the previous low of 96.2109 form the range-based "last line of defense".
At the indicator level, DIFF0.2442 and DEA0.2303 of MACD (26, 12, 9) are both above the zero axis, but the histogram 0.0278 shows that the upward kinetic energy is beginning to be blunted, warning of short-term "high shocks with insufficient capacity"; RSI (14) is near 56.5752, in the moderately bullish range but not overbought. xmaccount.comprehensive judgment: 98.1390 is the watershed between bulls and bears in the current trend, with 99.5549/99.5666 above forming a dense resistance zone; if the retracement does not break below the mid-rail, it is still a "consolidation with the trend"; if it falls below the mid-rail, it will point to the backtest of the 96.7114-96.2109 range. The price structure has not yet shown a typical "head and shoulders top/triple top" pattern, and is currently closer to a "repeated pressure test on the upper edge of the box" situation, with the box roughly falling between 96.50-100.
The above content is all about "[XM Foreign Exchange]: Everything is rising, except for the absence of logic, the paradoxical moment of the US dollar". It is carefully xmaccount.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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