DXY Technical Outlook
It’s extremely difficult to untangle the dollar from the euro in the third quarter as the single currency makes up 57.6% of the US Dollar index’s (DXY) composition. This means the dollar could consolidate or even exhibit weakness against other major currencies and still rise if the euro weakens substantially. Therefore, DXY remains vulnerable to a move higher, particularly at the very start of the quarter as the French go to the polls. Thereafter, the remainder of the quarter could see the greenback drift lower if that first- rate cut comes into view.
The DXY chart below shows the US-German 10-year bond spread which typically guides the pair. The interest rate differential suggests the dollar is overvalued or the euro is undervalued as the last time the bond spread was 1.87% the index traded at the 102.25. The price at the time of writing is 105.75. There is scope for the dollar to first strengthen before weakening later in the forecast horizon.
US Dollar Basket Weekly Chart
