The US dollar soars after ECB President Lagarde restrains the euro on expectations of slowing growth

• The US dollar soared, snapping a five-day winning streak.
• Traders heard Christine Lagarde say that the eurozone's growth outlook will deteriorate further following the ECB's 25 basis point interest rate cut.
• The US Dollar Index appears to have broken through a major level and is heading towards 104.00.

The U.S. dollar (USD) has risen for the fifth straight day when looking at the U.S. dollar index (DXY), which is considered a benchmark for the performance of the U.S. dollar. China's Housing Minister announced on Thursday that it would begin providing 4 trillion yuan (CNY) in funding to support the domestic housing market, which is significantly lower than the initial 6 trillion yuan announced on Monday. This will increase the momentum of the United States. ) Former President Donald Trump is expected to further lead in opinion polls heading into Election Day on November 5th.

The U.S. economic calendar is halfway through, with jobless claims dropping from 260,000 to 241,000, but U.S. retail sales rose 0.4%, higher than expected at 0.3% and 0.1% in August. Ta. Meanwhile, the European Central Bank (ECB) cut interest rates by another 25 basis points (bps) in accordance with the consensus. ECB President Christine Lagarde painted a less positive picture of the outlook for the eurozone, with growth likely to be on the downside, although clearly wages are still rising.

Daily Digest Market Trends: Lagarde just sunk the euro

• The US calendar began at 12:30 GMT with a mass release of data.
  • Weekly unemployment claims:
    • There were 241,000 first-time claims made in the week ending October 11, down from 260,000 the previous week.
    • Continuing claims for the week ending Oct. 4 were 1.867 million, lower than the expected 1.87 million.
  • September retail sales:
    • Monthly headline retail sales increased 0.4%, compared to 0.3% expected and 0.1% previously.
    • Monthly retail sales, excluding motor vehicles and transportation, rose 0.5%, compared with expectations of 0.1% and the previous reading of 0.2%.
  • The Philadelphia Fed Manufacturing Business Index rose to 10.3 in October, up from 1.7 in September and above expectations of 3.0.
• At 13:00 GMT, Federal Reserve Bank of Chicago President Austan Goolsby will deliver welcome remarks at the 5th Annual Conference on Career Path Exploration in Economics and Related Fields.
• At 13:15 GMT, the Federal Reserve will release industrial production data for September, which is expected to contract by 0.2%, compared to August's 0.8% increase.
• The National Association of Home Builders (NAHB) will release its monthly housing market index for October at 2:00 p.m. Japan time. It is expected to rise to 43 from 41 in September.
• The European Central Bank (ECB) has decided to cut its policy interest rate by 25 basis points. President Christine Lagarde is extremely bearish on the eurozone, saying she sees only further downside to growth and very limited upside going forward.
• Both European and U.S. stocks are surging on the back of the ECB's interest rate cut and strong U.S. economic data.
• The CME Fed's interest rate forecast at its Nov. 7 meeting has a 92.1% probability of a 25bps rate cut, with the remaining 7.9% assuming no rate cut. The possibility of a 50bp rate cut is fully priced in.
• The U.S. 10-year benchmark interest rate is trading at 4.09% after falling below 4% on Wednesday.

US dollar index technical analysis: ECB interest rate gap causes US interest rates to move away rapidly

The US dollar index (DXY) is rising in more and more headlines and media channels that are starting to highlight the possibility of Trump winning the US presidential election in November. Trading desks appear to have started hedging for this event, but no matter who wins, the risk is that the USD will continue to rise heading into the event and potentially reverse once it is over. So, the big takeaway is that DXY could become a “buy the rumor, sell the fact” event in the coming weeks.

Firm resistance lies at 103.79, which coincides with the 200-day SMA. Above that, there is a small gap before reaching the important level of 103.99 and the big number of 104.00. If Trump leads further in the polls, it could quickly rise to 105.00 or even 105.53.

On the downside, the 100-day SMA at 103.20 and the key level at 103.18 are currently acting as support and should prevent a decline in DXY. With the Relative Strength Index in overbought territory, a test at this level seems logical. Further downside, the 55-day SMA is at 101.84 and the key level at 101.90 should prevent further downside movement.

US dollar index: daily chart