The USDOLLAR (bottom candlestick chart) pullback that started on Friday seems disconnected from the underlying fundamentals. On Friday, the real rate (top candlestick chart) charted an indecisive doji, whilst the greenback declined markedly. Moreover, the dollar has shown weakness in today's morning session, with minimal movement from the real rate. Over the two sessions, their correlation coefficient declined from 69% to 52%.
One explanation may be the rumoured loosening of Covid restrictions in China resulted in a dollar squeeze. However, we caution that Chinese officials have already pushed back on the word. Moreover, US CPI data will release on Thursday, 10 November. If the median series shows no moderation, Fed hawkishness will likely support the USDOLLAR.
The US congressional mid-terms also pose volatility risk. A split Congress is likely priced, but any surprises will cause volatility to the FXCM USDOLLAR basket, which could have a ripple effect.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.