US Dollar softens ahead of eventful week

• US Dollar Index falls due to profit-taking, still trades above 104.00.
• Economists predict 3.0% growth for US Q3 GDP, which might continue favoring the USD.
• ISM Manufacturing PMI is expected to climb four points to 47.6, while the labor market is expected to show poor results for October.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, declined on Monday. Thisreversed earlier gains amid profit-taking ahead of key economic figures from October to be released later this week.

Despite a robust economy, the US Dollar faces headwinds. DXY breached its 200-day SMA but now consolidates due to overbought conditions. Fed officials remain cautious on inflation, and markets anticipate rate cuts by year-end.

Daily digest market movers: US Dollar retraces from gains ahead of high-tier data

• The US economy is expected to grow at a steady pace in Q3 as indicated by forecasts and economic models such as GDPNow and the New York Fed's Nowcast.
• The S&P Global US Manufacturing PMI rose to a two-month high in October, indicating a slight improvement in the manufacturing sector.
• ISM PMIs from the same month to be released on Friday will give further details.
• The positive economic data suggests that the US economy remains resilient despite global headwinds, supporting the US Dollar's strength.
• Labor market figures are expected to see poor results on Friday with Nonfarm Payrolls estimated below 200K in October, which might weigh on the USD.

DXY technical outlook: DXY overbought, buyers lose momentum

The DXY index briefly surpassed the 200-day SMA last week, but buyers lost momentum due to overextended upward moves. The index is now anticipating sideways movement to correct the overbought conditions.

Despite some gains at the week's end, indicators remain near the overbought zone. Support lies at 104.50, 104.30 and 104.00, while resistance levels exist at 104.70, 104.90 and 105.00.