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US Dollar Index rebounds from lows near 98.70, eyes on trade

  • DXY bounces off lows near 98.70.
  • US Core CPI rose 2.4% on a yearly basis in September.
  • US-China trade talks kicks in today in Washington.

The Greenback, when gauged by the US Dollar Index (DXY), remains on the defensive although it has managed to abandon the area of daily lows in the 98.70 region.

US Dollar Index vigilant on trade headlines

The index is rebounding from 3-day lows in the 98.70 area in tandem with the move higher in yields of the US 10-year benchmark, which are now surpassing the 1.60% region, or weekly highs.

Nothing to write home about from the US docket, where key inflation figures tracked by the headline CPI showed consumer prices came in flat MoM in September and rose at an annualized 1.7%. Core Prices rose 0.1% inter-month (from August’s 0.3%) and 2.4% over the last twelve months (unchanged). Additionally, Initial Claims rose by 210K WoW, bettering consensus.

The Greenback, as well as markets around the globe will be closely following the developments from the imminent US-China trade talks in Washington, where expectations among investors are divided between those optimistic of (at least) a partial deal and those who remains highly sceptical.

What to look for around USD

The Greenback has started the week on a better mood and it has managed to regain the 99.00 neighbourhood. Renewed US recession jitters and Fed easing chatter weighed on the buck during last week, particularly after the awful prints from the ISM gauges and the mixed employment report for the month of September. In the very near term, investors’ focus will be on the resumption of US-China high-level trade talks starting today in Washington. Despite evidence that the US economy could be losing some momentum, the labour market remains strong as well as consumer spending, while the recent pick up in inflation adds to the auspicious domestic scenario vs. the generalized slowdown in most of overseas economies. On the broader view, the constructive outlook in DXY looks a bit damaged but it still is in play amidst a divided FOMC vs. a broad-based dovish stance from the rest of the G-10 central banks. In addition, the positive view on USD remains well sustained by its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.31% at 98.80 and faces the next support at 98.66 (low Oct.10) seconded by 98.64 (monthly low Oct.3) and then 98.36 (55-day SMA). On the upside, a breakout of 99.67 (yearly high Oct.1) would aim for 99.89 (monthly high May 11 2017) and then 100.00 (psychological handle).

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