US Dollar Index firm around 98.00, focus remains on Fed, data

• DXY enters its third week with gains around 98.00.
• US 10-year yields rebound from the 2.06% handle.
• FOMC meeting, trade, Payrolls likely to drive sentiment this week.

The greenback, in terms of the US Dollar Index (DXY), has managed to regain the 98.00 neighbourhood and is now navigating the area of fresh 2-month tops.

US Dollar Index looks to Fed, trade talks

The index is prolonging the upside momentum just above the key barrier at 98.00 the figure, as market participants continue to digest Friday’s auspicious Q2 GDP figures while the generalized optimism following solid earnings results from US companies adds to the upbeat tone.

Also propping up the sentiment, US negotiators will meet their Chinese counterparts later this week in Shanghai in order to resume trade talks.

Recent GDP figures appear to have slashed any speculation of a 50 bps rate cut at the FOMC event later in the week, leaving a 25 bps interest rate cut (‘insurance cut’) well priced in for the time being.

Moving forward, the FOMC meeting on Tuesday/Wednesday will be the salient event along with the publication of July’s Payrolls figures on Friday. Other key releases include PCE and CB’s Consumer Confidence (Tuesday), the ADP report (Wednesday), the ISM Manufacturing (Thursday) and final U-Mich prints (Friday).

What to look for around USD

Investors have already priced in a 25 bps interest rate cut this month, while a larger rate cut is now practically off the table following Friday’s GDP figures. Trade talks are back to the fore in light of this week’s meeting in China, also lending support to the pick up in the risk-on mood. The demand for the greenback, in the meantime, stays underpinned by its safe have appeal, the status of ‘global reserve currency’, solid US fundamentals and the broad-based shift to a more accommodative stance from the rest of the G-10 central banks.

US Dollar Index relevant levels

At the moment, the pair is up 0.10% at 98.00 and faces the next resistance at 98.09 (monthly high Jul.26) seconded by 98.33 (monthly high Apr.23) and finally 98.37 (2019 high May 23). On the flip side, a breakdown of 96.87 (200-day SMA) would open the door to 96.67 (low Jul.18) and then 96.46 (low Jun.7).