Yesterday, the dollar surged against the euro, pound, and yen, fueled by better-than-expected US data. The main trigger was the Conference Board's consumer confidence report, which beat expectations by a wide margin.

The consumer confidence index for October rose 7.5 points to 91.7 versus an 80.5 forecast; September was revised up to 84.2. The current conditions index, reflecting assessments of business and the labor market, climbed 8.6 points to 120. 4. The expectations subindex returned to growth, up 6.9 points to 72.6, partly offsetting three months of declines. The survey ran from October 1 to 21.

Reasons for the improvement are clear. Americans reported better views of current business and labor market conditions, and pump prices fell from September to October, coinciding with the sentiment lift. Conference Board senior economist Fergus McCormick warned, however, that the overall trend in confidence has been downward for several years. Households plan to curb spending on services and durable goods as high prices and persistent inflation erode purchasing power; respondents increasingly cite food, oil, and diesel as key concerns.

Housing data also supported the dollar. New single family home sales in September were annualized at 676k versus a 649k forecast and 680k in August, so the 0.6% monthly decline was better than expected. New home inventory fell to 476k—about 8.4 months of sales—and median price rose 3.9% month-on-month to $400,400, though down 3.9% year-on-year. Housing remains the US economy's most vulnerable sector due to expensive mortgages, so this outcome was a welcome surprise.

For markets, this implies several things: a resilient consumer and a firmer housing market reduce the risk of US slowdown and therefore give the Fed fewer reasons to refrain from tightening against inflation. Odds of a hike at this meeting are roughly 10%, while year-end hike bets remain in place given high oil. The 10-year Treasury yield has returned above 5.00%, creating additional demand for the dollar, which in this environment offers superior yield and a stronger economy.

European currencies and the yen had little to offer in response. The euro still bears the weight of weak euro area data and French risks, and ahead of the ECB meeting, the market expects little more than a pause. The pound remains under pressure after weak retail sales and bets on Bank of England hikes are already priced in. The yen lost ground despite Japan's inflation measure rising to 2.4% in September vs. a 1.9% forecast—the market expects the BoJ to remain cautious.

I think the dollar will retain the upper hand today ahead of the Fed decision unless the Fed signals easing. The euro and pound will struggle to reclaim losses while US data remain strong and oil stays costly; a hawkish Washington can keep the dollar elevated. If the Fed surprises with dovish language, a correction against the dollar becomes likely.

Technical picture for EUR/USD

Buyers should focus on reclaiming 1.1140. Only that would open a test of 1.1155, and from there a push to 1.1180 is possible, though hard without big-player support. On the downside, expect serious buying around 1.1115; if that fails, wait for a new low near 1.1090 or consider longs from 1.1050.

Technical picture for GBP/USD

Pound buyers need to take the nearest resistance at 1.3300 to aim for 1.3330; above that a breakout will be difficult. The far target is 1.3360. On a decline, bears will seek control of 1.3265; a break there would hit bulls and push GBP/USD toward 1.3230 with scope to 1.3200.