- DXY continues to digest last week’s losses.
- US-China trade remains in centre stage after recent partial deal.
- US data this week includes Retail Sales and the Philly Fed index.
The Greenback, when tracked by the US Dollar Index (DXY), is attempting some consolidation in the lower end of the recent range near the 98.40/30 area.
US Dollar Index stays weak on better risk tone
The index is looking for direction at the beginning of the week following three consecutive daily pullbacks, always under pressure in response to the improved sentiment in the risk-associated universe.
In fact, the US and China reached a partial deal on Friday, motivating President Trump to suspend the tariff hike on Chinese products planned for later this month.
Also adding to the better mood in the riskier assets, hopes of a Brexit deal remain on the rise following last week’s important advance in negotiations between both parties.
Moving forward, this week’s US calendar includes the release of Retail Sales, the Fed’s Beige Book and the Philly Fed manufacturing index.
What to look for around USD
The decline in DXY appears to have found support near 98.30 so far, although the Greenback is expected to remain under pressure this week in response to the prevailing risk-on sentiment. Investors’ attention now shifted to the increasing likeliness of another insurance cut by the Fed at the next meeting and its recently announced programme to expand the balance sheet via purchases of T-bills to remove pressure from the money markets. Despite evidence that the US economy could be losing some momentum, the labour market remains strong as well as consumer spending, although the latest mixed results from the CPI appear to support the view of extra cuts by the Fed in the near future. 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 gaining 0.06% at 98.39 and a breakout of 98.78 (21-day SMA) would open the door to 99.25 (high Oct.9) and then 99.67 (2019 high Oct.1). On the other hand, the next support emerges at 98.20 (monthly low Oct.11) seconded by 97.86 (monthly low Sep.13) and then 97.80 (100-day SMA).
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