The Dollar's November Decline and Economic Disappointments

Historical records indicate that November has historically been a challenging month for the Dollar, and it appears that this November is following the trend. The currency commenced the month with a notable decline, shedding roughly 1.7% of its trading value in less than a week. The DXY index made a sharp move downward, breaking out of the range it had been consolidating in since mid-September:The range in which the dollar index had been fluctuating for nearly a month represented the area of annual highs. The last time the dollar index traded at such a high level in November was in 2023. During this horizontal movement, there may have been a phase of gradual accumulation of short positions by major players, and the recent Federal Reserve meeting became a catalyst for a potential trend reversal. The 1.7% drop in less than a week suggests that the shift in expectations was quite sudden and significant, and it is unlikely to be reversed in the short term without a substantial reason. It's worth noting that last November also saw a steep decline, providing further evidence of a seasonal weakening of the dollar.Last week, the U.S. economy disappointed the markets with weak data and economic reports, both soft survey data and official statistics. Activity indices in the service and manufacturing sectors fell below expectations, with the service sector's PMI index being particularly disappointing (current reading 51.8, forecast 53 points). Purchasing manager surveys showed that the service sector grew in October at a much slower pace than expected, increasing concerns about the fading positive momentum in the economy that had emerged around mid-summer. Labor statistics also took an unpleasant turn, with an unexpected acceleration in initial jobless claims (up to 217K per week) and a continued increase in long-term unemployment claims, indicating that the difficulty of finding a job (i.e., exiting unemployment) has been steadily rising since mid-September. Job growth, as estimated by the private agency ADP as well as according to the NFP, came in below expectations, with an increase of 150K compared to a forecast of 178K, and the unemployment rate rose to 3.9%. A significant dovish signal was the slowing wage growth rate of 0.2% for the month, below the 0.3% forecast. The Federal Reserve and its chairman, Powell, emphasized during their recent meeting that their December decision would be entirely based on incoming data. In light of the weak statistics, the market was forced to practically exclude the possibility of a rate hike in December and increase the likelihood of a rate cut in the second half of 2024. Treasury bond yields decreased; for example, the yield on a two-year bond dropped from a high of 5.24% to 4.87%, effectively reflecting market expectations that the Fed would not tighten its policy in December. The entire yield curve shifted downward, and there was a turnaround in the spread between long and short-term bond yields, which fell from -0.13% to -0.26%, indicating that investments in long-term government debt, which is more susceptible to inflation, became slightly more attractive than short-term bonds, suggesting a decrease in inflation expectations:The economic release calendar for this week is rather uneventful, with no significant reports expected on the U.S. economy. Given the magnitude of the dollar's decline this week and the absence of data that could further fuel concerns about a slowdown in the U.S. economy, some market participants may decide to take profits from their short dollar positions. In terms of short-term technical analysis, particularly for the EUR/USD pair, there are indications of overbought conditions at the moment. The price has reached the upper boundary of a bullish channel, which could act as a barrier to further gains this week: