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  • DXY came under pressure on poor ISM.
  • Recession fears hurt USD-sentiment.
  • US ADP report next of relevance later today.

The Greenback is now looking to stabilize in the 99.20 region when tracked by the US Dollar Index (DXY) following Tuesday’s negative price action.

US Dollar Index recedes from YTD highs beyond 99.60

After clinching fresh tops in the 99.60/65 band on Tuesday, the index corrected sharply lower to close the day in the 99.10 region following an awful print of the critical ISM manufacturing, which retreated to a decade-low at 47.8 for the month of September.

Renewed (and usual) fears of a US recession in response to weak data hurt the sentiment surrounding the buck and dragged stocks and yields lower. In fact, yields of the key US 10-year reference shed some 14 bps from the vicinity of 1.76% to as low as sub-162% levels, where some support turned up.

In the docket today, the usual report on the job creation in the US private sector by the ADP will grab all the attention ahead of Friday’s Payrolls. In addition, Richmond Fed T.Barkin (2021 voter, centrist) speaks on Rural Economy, Philly Fed P.Harker (2020 voter, dovish) will speak at a Community Banking Finance and New York Fed J.Williams (permanent voter, centrist) will speak in San Diego.

What to look for around USD

The index came under selling pressure after hitting fresh 2019 highs above 99.60 on Tuesday. Further out, the sentiment around the buck is looking to recover following the shocking results from the ISM manufacturing, although the prospect still looks constructive amidst a divided FOMC vs. a broad-based dovish stance from the rest of the G-10 central banks. In spite of some key fundamentals appear to have run out of steam in past months, 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. Domestic data in combination with politics and developments from the US-China trade front should be key in determining the next decision on interest rates amidst Powell’s ‘mid-term adjustment’. Looking at the broader picture, the positive view on the Dollar is also well underpinned by its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.01% at 99.16 and faces immediate contention at 98.60 (21-day SMA) seconded by 98.19 (55-day SMA) and finally 97.86 (monthly low Sep.13). On the other hand, 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).