- DXY looks to stabilize near the 97.00 mark.
- Yields of the US 10-year note hovering around 2.10%.
- US Factory Orders, Fedspeak next of significance in the docket.
The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, remains under pressure in the first half of the week and is so far holding on to the 97.00 support.
US Dollar Index focused on trade, Fed
The index is trading in fresh 2-month lows in the 97.00 neighbourhood – levels last seen in mid-April – always on the back of persistent trade tensions and market chatter pointing to a Fed’s rate cut in the medium term.
The buck saw its decline accelerated on Monday after FOMC’s J.Bullard (voter, dovish) hinted at the likeliness that a rate cut by the Federal Reserve appears likely in the medium term in response to prospects of slowdown in the economy and absence of a sustainable up move in inflation.
This idea is somewhat shared by increasing market participants and finds support in the persistent inversion of the yield curve in the US money markets, where yields of the US 10-year reference are now rebounding from yesterday’s lows in the 2.07% region, the lowest level since September 2017.
In the US docket, Factory Orders for the month of April will be the only publication of note today. Additionally, NY Fed J.Williams (permanent voter, centrist) will speak at a Conference on ‘Reforming Bank Culture’, Chief J.Powell will discuss policy strategy at the Chicago Fed Conference and FOMC’s L.Brainard (permanent voter, dovish) will moderate a panel at the same event.
What to look for around USD
The greenback is suffering markets’ perception of a potential rate cut by the Federal Reserve in light of the persistent decline of US yields, increasing trade tensions, the inversion of the 3M-10Y yield curve and dovish Fedspeak. In the meantime, trade fears have moved from US-China to US-Mexico following recent Trump’s threats, all adding to the idea that a global slowdown is in the offing. However, the Fed remains patient for the time being, closely watching critical upcoming data releases.
US Dollar Index relevant levels
At the moment, the pair is losing 0.08% at 97.13 and a drop below 97.00 (low Jun.4) would open the door for 96.94 (100-day SMA) and then 96.75 (monthly low Apr.13). On the upside, the next hurdle emerges at 97.39 (55-day SMA) seconded by 98.28 (high May 30) and finally 98.37 (2019 high May 23).
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