US Dollar sell-off halts amid holiday season

• The US Dollar is in a standoff between bears and bulls. 
• Equity markets trade flat with US futures hesitant to continue the Christmas rally.
• The DXY US Dollar Index trades near 101 and a breach could see an accelerated nosedive. 

The US Dollar (USD) is hanging over an abyss of substantial downturn since its weak performance ahead of Christmas. On the US Dollar Index (DXY) chart, a broad area is open for a quick decline in the Greenback’s value. With a lot of trading desks running on half power and most companies closed for the holiday season, thin liquidity could either salvage the situation or make it even worse for the Greenback. 

On the economic front, some light data lie ahead with the Richmond Fed Manufacturing Index. Market reaction to the numbers should be fairly muted. The main driver will rather be the risk factor – with equities either advancing or correcting into year-end. 

Daily digest Market Movers: Mild calendar ahead

• Richmond Fed Manufacturing Index for December is due near 15:00. Previous was at -5, with -7 expected for this month. 
• The US Treasury will have some people coming into the office to allocate a 5-year Note in the market near 18:00 GMT.
• Equities are very geographically divided this Wednesday: Asian equities are jumping higher and are booking over 1% gains in Japan and Chinas’ major indices. European equities look rather reluctant to take over the positive vibe out of Asia and are mildly in the green by less than 0.5%. US futures are all trading marginally in the red. 
• The CME Group’s FedWatch Tool shows that markets are pricing in an 85.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 14.5% expect the first cut already to take place.
• The benchmark 10-year US Treasury Note trades near 3.86%, the lowest level since summer.

US Dollar Index Technical Analysis: Flip a coin 

The US Dollar Index looks incapable of recovering soon from the current downturn since November. Traders should be warned that these days between Christmas and New Year usually exhibit thin liquidity and a low number of market participants being present in the markets. Should the US Dollar be able to hold the current position in the DXY, some recovery could be at hand once traders come back in January. 

First upside resistance to face is near 101.78 at the low of December 21st. Although a long way to go, it looks not unthinkable that the DXY might test the descending trend line near 103.00. Depending on the catalyst that fuels the recovery in the Greenback, the 200-day Simple Moving Average (SMA) near 103.45 is firm last resistance before having more upside. 

To the downside, the pivotal level at 101.70 – the low of August 4 and 10 – is vital to hold and could still see a close this week. Once broken, look for 100.82, which aligns with the bottoms from February and April. Should that level snap, nothing will stand in the way of DXY heading to the sub-100 region.