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  • DXY extends the downside to the 96.50 region.
  • Markit’s Services PMI came in at 52.8 in December.
  • US-Iran conflict keeps dictating markets’ sentiment.

The greenback remains well on the defensive on Monday although it has managed well to bounce off earlier lows in the mid-96.00s when tracked by the US Dollar Index (DXY).

US Dollar Index looks to geopolitics, data

The index has extended the correction lower following the rejection from last week’s peaks in the 97.10 area. Once again, the dollar met some decent support in the 96.50 region, although it remains vulnerable.

In the meantime, all the attention stays on the US-Iran scenario, where war threats continue to escalate after a US drone strike killed a key Iranian commander last Thursday. In this regard, and trying to cool down the situation, US Advisor Conway said earlier that President Trump is optimistic regarding a potential renegotiation of a nuclear deal with Iran.

Also weighing on the buck today, yields of the key US 10-year note continue to trade in multi-week lows around 1.75%, down from last week’s tops near 1.95%, all in response to investors’ preference for safer assets.

Still in the US, the FOMC minutes released on Friday noted the Committee stays convinced that the current stance of the Fed is ‘appropriate’, while it now sees diminishing risks of a US recession and expressed some concerns over the persistent low inflation.

In the US data sphere, Markit’s final Services PMI for the month of December came in at 52.8, bettering consensus. Further key data releases this week include the ISM Non-Manufacturing PMI and trade balance figures (Tuesday), the ADP report (Wednesday), usual weekly Claims (Thursday) and the always-relevant monthly employment report (Friday).

What to look for around USD

The index has rebounded from 5-month lows near 96.30, although it failed to extend the recovery further north of the 97.00 barrier on a sustainable basis for the time being. In the meantime, geopolitics – with US and Iran in centre stage – keeps stealing the show seconded by the imminent sign of the ‘Phase One’ deal with China. In spite of the recent weakness, the constructive view on the dollar remains unaltered and stays underpinned by the so far ‘wait-and-see’ stance from the Fed vs. the broad-based dovish view from its G10 peers, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.22% at 96.68 and faces initial support at 96.36 (monthly low Dec.31) seconded by 96.04 (50% Fibo of the 2017-2018 drop) and then 95.84 (monthly low Jun.25 2019). On the upside, a break above 97.18 (21-day SMA) would open the door to 97.69 (200-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop).