During European trading hours on Thursday (October 9), the US Dollar Index (DXY) traded around 98.85. The market saw significant intraday volatility, initially declining, then rising, and then falling again. The ongoing US government shutdown and the Federal Reserve's dovish outlook continued to weigh on market sentiment. The US government shutdown, now in its ninth day, followed the Senate's rejection of a new funding bill, sparking concerns about a prolonged economic disruption and further dampening investor confidence.



Traders worry that if the government shutdown continues, it could drag down short-term economic growth and delay the release of key economic data, thus weakening demand for the dollar. This uncertainty has prompted investors to unwind bullish positions, keeping the dollar under pressure.

Fed meeting minutes show disagreement on short-term monetary policy issues

Minutes of the Federal Reserve's September meeting released on Wednesday showed that Fed policymakers were divided on short-term monetary policy issues: a weak labor market and rising inflation risks posed challenges to the central bank.

The minutes showed that most policymakers supported the recent rate cuts and were open to further easing this year.

According to the CME Fed Watch tool, the market currently expects the Fed to cut interest rates by 25 basis points in October, and the probability of another rate cut in December is 78%.

Weakness in the euro and yen is driving dollar strength

French Prime Minister Sebastien Le Cornu abruptly resigned on Monday, sending the euro sharply lower as markets await President Emmanuel Macron's appointment of a new prime minister, who will face a daunting task: trying to cut France's fiscal deficit amid strong opposition in parliament.

In Japan, after Sanae Takaichi, who advocates fiscal easing policies, won the Liberal Democratic Party's internal election, the market began to speculate whether she would re-implement "Abenomics" - stimulating the economy through large-scale spending and loose monetary policy, which would undoubtedly further weaken the yen's exchange rate.

Focus on Powell's speech

Market attention is now turning to Federal Reserve Chairman Powell's speech later on Thursday, hoping to gain policy cues. Any suggestion of opposition to further significant rate cuts in the speech could help stabilize the US dollar index; conversely, a reaffirmation of the Fed's dovish stance could extend the dollar's weakness into subsequent trading sessions.

Technical Analysis


(Source: 4-hour chart of the US dollar index: Yihuitong)

The US Dollar Index (DXY) remained near 99.85 intraday, maintaining its bullish structure after breaking through its 50-day and 200-day exponential moving averages (EMAs). A rising trendline has provided support for the DXY since mid-September, maintaining its upward trend. Current price action suggests the DXY is consolidating below key resistance at 99.18, a break of which could trigger further gains towards 99.70.

Momentum indicators are showing mild strength, with the Relative Strength Index (RSI) near 63, suggesting that bulls remain in control. A healthy pullback towards 98.70 could provide an opportunity for investors to re-enter the market, while a break above 99.18 would confirm the continuation of the upward trend.

Overall, the US Dollar Index maintains a constructive outlook above 98.30, supported by the combined support of the trendline and the exponential moving average (EMA).