Ahead of this week's Fed meeting, 2-bar reversals patterns have formed near key levels for the USD.
![DXY: Large Speculative Positioning DXY: Large Speculative Positioning](https://d1-invdn-com.akamaized.net/content/pic68e80d37a44f8ec79a249584969949b4.png)
Traders have become less bullish on the USD recently. As of last Tuesday, traders had reduced net-long exposure on DXY to a 6-week low. Bullish exposure fell -6.2k contracts (its largest bullish reduction since March) and the move was fuelled by closure of longs and increase of shorts.
Furthermore, net-short exposure for CAD, CHF, EUR, GBP and NZD was reduced and net-long exposure on CAD futures saw an increase against the dollar.
![DXY: Forward Returns, Fed Cuts Since Aug. 84 DXY: Forward Returns, Fed Cuts Since Aug. 84](https://d1-invdn-com.akamaized.net/content/pic99637db033797a93132b1ff5cffe2273.png)
With the CME FedWatch tool implying a 95.7% chance the Fed will cut by 25 bps on Wednesday, the cut may well already be priced in. We’d therefore likely need a dovish cut (via the press conference) to see a notable downside move for the dollar. However, as previous analysys has shown, the U.S. dollar tends to appreciate following a Fed cut. Whilst the average forward return suggests gains are more likely between 3-10 day after a cut, DXY has risen on the day of the cut in July and September this year.
![USD Weekly USD Weekly](https://d1-invdn-com.akamaized.net/content/pic8e7f1cc250d4d636f28cdc1ac4624ea1.png)
Last week’s bullish candle snapped a 3-week losing streak and saw prices remain above the 97, with the 50-week eMA acting as support. Whilst the broad bullish channel allows for further downside, the typical correction of ‘around’ 2.5% from its highs this channel has become accustomed to has been achieved, so it’s possible we may have seen the low.
![USD Daily USD Daily](https://d1-invdn-com.akamaized.net/content/pic32680ff6cc93959713b68d5678cf8186.png)
Switching to the daily chart, the bounce from 97 occurred and prices are now having around the September lows. It’s failure to hold below the 200-day eMA is worth noting as when this occurred in June, it was the beginning of its break to new highs.
A dark cloud cover has occurred at the highs with the 100-day eMA capping as resistance, and a dovish cut and / or knee jerk reaction following the Fed meeting could see this level continue to hold over the near-term. However, whilst prices remain above 97, the bias is for a break to new highs. Although with the Fed meeting less than 48 hours away, it’s possible prices could remain rangebound until the press conference.
![EURUSD Daily EURUSD Daily](https://d1-invdn-com.akamaized.net/content/picea6a96fc78549ce492644d736bbe8053.png)
As for EUR/USD, a bullish 2-day bar reversal is apparent above 1.1070 support to suggest a minor bounce could be on the cards. Although the 200-day eMA has remained unchallenged and continues to point lower. If we’re bullish on DXY, then clearly we’re going to be bearish on EUR/USD due to their strongly inverted correlation (DXY is heavily weighted towards the euro at around 57%).
A firm break below 1.1070 opens up a run towards 1.10, whilst a break above 1.12 suggests price are to retrace towards the upper bounds of the bearish channel.