Dollar Resumes Rally as Euro Faces Pressure Amid Global Market Developments

The dollar has resumed its rally after a pullback to the 105.50 area in the second half of last week amid a bullish retracement in the stock market, largely driven by profit-taking actions. The dollar index crossed the 106.50 mark on Monday. From a technical analysis perspective, the primary setup for DXY right now is the clear ascending channel on the four-hour timeframe. Based on its structure, the next target for dollar buyers is likely to be a test of the upper boundary of the channel, which corresponds to the level of 107 points.However, with a change of direction, it can be expected that buyers will not resist until the level of 105.90-106, where, as seen, the lower boundary of the corridor resides.The holidays in China, which will last throughout this week (Golden Week), will ensure low activity in the currency market during Asian hours. For this reason, we are seeing a limited reaction to the PMI data from China released over the weekend. Market attention is focused on the decision of the US Congress to pass a temporary budget to fund the government until November 17th, which will prevent a government shutdown.This week, various countries will see releases of fresh manufacturing PMI data, including the ISM in the United States today. However, the highlight of the macroeconomic calendar will be the release of the US employment report for September on Friday. According to forecasts, an increase in the number of jobs is expected at a level of 170-180K, with unemployment expected to decrease to 3.7%. Average hourly earnings are expected to rise by 0.3% MoM. Apparently, these figures will not change the Federal Reserve's firm stance or the strengthening trend of the dollar.The publication of income and expenditure data for US households in August last Friday, including significant revisions for previous months, suggests that consumers in the US are in even better shape than previously thought. The data suggests that strong US consumption may continue into the fourth quarter, and despite the soft core PCE deflator, which indicates that the Federal Reserve does not need to raise rates further, arguments in favor of possible early rate cuts have also become more fragile.Considering that long-term US yields have been a significant factor for the dollar in recent weeks, a calmer week in the bond market may allow the dollar to consolidate at higher levels. It is worth noting that next week will see auctions of three-, ten-, and thirty-year US Treasury securities, which could be the next key factor for yields, assuming no major surprises in Friday's US employment report.In addition to the ISM publication, today's calendar also includes a roundtable discussion with Federal Reserve Chair Jerome Powell. The DXY index is likely to remain in the range of 106-107 this week.The EURUSD rally in the second half of last week lost momentum above 1.06, indicating only a brief bearish pressure on the dollar associated with the end of the quarter. The mentioned revisions to US consumption and savings data make the scenario of EURUSD staying at lower levels for some time relevant, suggesting that the 1.05 region could easily be tested this week.The European economic calendar this week is likely to confirm another set of weak PMI data for Europe in September. Attention will then shift to the question of whether the European Central Bank still needs to implement its final interest rate hike. This week features a multitude of ECB representatives giving speeches, with the highlight possibly being ECB President Christine Lagarde speaking at a monetary policy conference on Wednesday. For reference, financial markets have largely priced out any further tightening of ECB monetary policy in this cycle, with only 3-4 basis points of tightening expected by year-end.