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  • DXY challenges 2020 lows in the vicinity of the 92.50 mark.
  • Risk-on sentiment puts the dollar under extra downside pressure.
  • Housing Starts, Building Permits, Fedspeak next on the US docket.

The greenback, when tracked by the US Dollar Index (DXY), remains well under pressure and drops to the area of yearly lows in the mid-92.00s.

US Dollar Index hurt by risk-appetite trends

The index is down for the fifth session in a row on turnaround Tuesday, opening the door at the same time for further weakness and a potential re-visit to the 2020 lows near 92.50 should not be ruled out in the short-term horizon.

In fact, investors remain biased towards the riskier assets for yet another session, putting the buck under extra selling pressure, all despite another bout of US-China trade war. Indeed, the White House has announced further restrictions on Chinese tech giant Huawei, this time banning it from using foreign-made chips produced by US software or technology.

From the US political scenario, the Democratic National Convention kicked in on Monday, with President Trump’s mishandling of the coronavirus crisis in the centre of the debate. In addition, there is no progress regarding another fiscal stimulus package, which remains entrenched within discussions among US lawmakers.

Later in the NA session, the US housing sector will be in the limelight with the publication of July’s Housing Starts and Building Permits, all followed by the weekly report by the API on crude oil supplies. In addition, FOMC’s permanent voter and dovish member L.Brainard is due to speak.

What to look for around USD

The index remains on the defensive below the 93.00 level and is already flirting with +2-year lows in the 92.50 zone. Looking at the broader picture, investors remain bearish on the dollar against the usual backdrop of a dovish Fed, the unabated advance of the pandemic, political uncertainty and somewhat diminishing momentum in the economic recovery, whereas persistent US-China effervescence could lend some occasional legs to the greenback.

US Dollar Index relevant levels

At the moment, the index is losing 0.30% at 92.55 and faces the next support at 92.52 (2020 low Aug.6/18) seconded by 91.80 (monthly low May 18) and then 89.23 (monthly low April 2018). On the flip side, a break above 93.99 (weekly high Aug.3) would aim for 94.20 (38.2% Fibo of the 2017-2018 drop) and then 96.03 (50% Fibo of the 2017-2018 drop).