The Dollar Is Waiting for a Correction Sign

The U.S. Dollar index (DXY) is rising by 0.38% to 103.89 points this week, while the EURUSD is declining by an equivalent 0.38% to 1.08420. The Greenback has now strengthened for four consecutive weeks, though this rise appears to be losing momentum.

Last week, the Dollar gained strength following the European Central Bank's (ECB) predictable decision to cut interest rates by another quarter percentage point. However, ECB President Christine Lagarde struck a more optimistic tone on inflation, stating it would return to the 2.0% target by the end of 2025. This signaled the ECB's readiness to cut rates further if needed.

In response, the EURUSD plunged by 1.11% to 1.08100, the lowest level since 2 August. Later, the pair rebounded to 1.08690, reducing weekly losses to 0.59%. Such a swift recovery often signals an impending correction. The Dollar, meanwhile, started to show signs of weakness despite strong macroeconomic data. Large investors have noticed this. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) reported net outflows of $25.7 million last week, indicating that many are betting on a weaker dollar. A long position on EURUSD was opened at 1.09000, with expectations that the pair may recover towards the 1.10500-1.11000 range.

This week, Manufacturing and Services PMI data for October will be released, with the Eurozone expected to show the strongest results, while the U.S. and U.K. may lag behind. This could provide a catalyst for EURUSD to recover. Furthermore, ECB President Christine Lagarde and Bank of England Governor Andrew Bailey are scheduled to speak, potentially paving the way for coordinated actions that might weaken the Dollar ahead of the U.S. presidential election. Such coordination among central banks is not uncommon.

From a technical perspective, the EURUSD is trading near a key support level at 1.08500-1.08700, with the current price around 1.08170. Next week presents an ideal window for a potential reversal, providing an opportunity for the Dollar to weaken.