Dollar Index: Teasing bearish reversal ahead of weekend’s Trump-Xi meeting

• The dollar index is on the defensive, having charted a bearish outside-day on Wednesday.
• A close below Wednesday’s low of 96.69 would confirm a bearish reversal.
• Trump-Xi meeting in Argentina is unlikely to produce a trade accord.

The dollar index (DXY), which tracks the value of the greenback against majors, is currently trading at 96.76, having created a bearish outside-day on Wednesday.

That candlestick pattern marked an end of the rally from the Nov. 20 low of 96.04 and also established 97.54 as the level to beat for the bulls. A bearish reversal, however, would be confirmed after the support at 96.69 (low of bearish outside-day) is breached on a daily closing basis.

The index did drop below 96.69 yesterday after the Fed minutes undermined expectations of a rate hike pause in 2019. The drop below the key support, however, was short-lived, as the 10-year treasury yield recovered sharply from 2.99 percent to close the day with moderate losses at 3.037 percent.

The recovery in Treasury yields likely indicates the markets have digested the tweak in Fed view.

As a result, the greenback could draw a strong bid if the meeting between US President Donald Trump and Chinese President Xi Jinping in Argentina ends on a sour note.

Indeed, the bar of expectations is set low. The investors, however, are expecting the meeting will produce a pause in the trade war. The markets will likely turn risk-averse if the two leaders fail to meet expectations, pushing the USD and other safe havens higher.

A surprise deal, however, would open the doors for a Santa rally in equities and a deeper drop in the greenback.

Dollar Index Technical Levels