US Dollar Index parked below 99.00 ahead of Powell

• DXY trades close to the 99.00 handle ahead of Powell’s speech.
• US 10-year yields plummet to the 1.52% area.
• US Producer Prices surprised to the downside in September.

The Greenback, in terms of the US Dollar Index (DXY), is alternating gains with losses on Tuesday around the key 99.00 area.

US Dollar Index shifts the attention to Powell, FOMC

The index is giving away part of Monday’s gains to the area just beyond 99.00 the figure on the back of the moderate decline in yields of the key US 10-year benchmark. In fact, yields are now challenging daily lows around 1.52% after having advanced to the vicinity of 1.60% earlier in the session.

News citing the White House could limit the presence of Chinese stocks in the government pension fund appears to have dented the expectations surrounding the imminent US-China trade talks in Washington (Thursday and Friday) morphing into some rebound in the risk-aversion and renewed downside in USD/JPY.

In the US docket, September’s Producer Prices contracted 0.3% inter-month and rose 1.4% over the last twelve months. Core prices also missed estimates, contracting at a monthly 0.3% and expanding 2.0% from a year earlier.

Later in the session, Chief J.Powell will speak at the NABE Conference in Denver, keeping the buck in centre stage. Tomorrow, all the attention will also be on the USD side with the publication of the FOMC minutes.

 What to look for around USD

The Greenback has started the week on a better mood and is looking to leave behind last week’s negative price action. Renewed US recession jitters and Fed easing chatter weighed on the buck during last week, particularly after the awful prints from the ISM gauges and the mixed employment report for the month of September. In the very near term, investors’ focus will be on the FOMC minutes (Wednesday) and US-China trade talks (Thursday and Friday). Despite evidence that the US economy could be losing some momentum, 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. 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 losing 0.06% at 98.92 and faces the next support at 98.71 (21-day SMA) seconded by 98.31 (55-day SMA) and finally 97.86 (monthly low Sep.13). On the upside, 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).