US Dollar Index regains the 98.00 handle and above

  • DXY starts the week on a positive footing.
  • US 10-year yields rose to new highs above 1.90%.
  • NY Empire State index due later in the day.

The Greenback, in terms of the US Dollar Index (DXY), has started the week on a firm note and has regained the key barrier at 98.00 the figure and beyond.

US Dollar Index focused on FOMC

The index has regained some poise at the beginning of the week and manages to return to the area above 98.00 the figure amidst a broad-based risk-off sentiment in the global markets following the drone strikes on Saudi Arabia over the weekend.

In the meantime, US yields ended last week on a positive fashion in response to auspicious headlines from the US-China trade front, where the resumption of negotiations is expected at some point early next month.

Further out, the buck is expected to trade within a sideline theme in light of the FOMC gathering on Wednesday. Market consensus has practically fully priced in another 25 bps ‘insurance cut’, while the probability of this scenario is now seen at around 84% according to CME FedWatch Tool (from around 94% last week).

Data wise today, the NY Empire State manufacturing index will be the sole release in a week dominated by the FOMC event (Wednesday).

What to look for around USD

The Greenback has come under renewed selling pressure in past sessions, motivating the index to trade closer to the key support line in the 97.70/60 region. Above this area, the immediate outlook for the buck should remain constructive and bolster a potential move to YTD peaks near 99.40. Later this week, the Fed is expected to extend its ‘mid-cycle adjustment’ and reduce the FFTR by another 25 bps, all under the pledge to ‘sustain the ongoing expansion. Markets, however, appear somewhat overconfident in the fact that the Federal Reserve will embark on a sustained reduction of interest rates, leaving the door wide open for a probable disappointment at this week’s event. Looking at the broader picture, the positive view on the Dollar is well underpinned by the solid US labour market, strong consumer confidence and spending and the auspicious pick up in consumer prices, all adding to the buck’s safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.30% at 98.16 and a breakout of 99.10 (high Sep.12) would aim for 99.37 (2019 high Sep.3) and then 99.89 (monthly high May 11 2017). On the downside, immediate support emerges at of 97.86 (monthly low Sep.13) followed by 97.80 (55-day SMA) and finally 97.17 (low Aug.23).

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