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  • DXY trades within a tight range in the sub-98.00 area.
  • US 10-year yields testing lows near 1.82%.
  • US-China trade concerns have re-emerged.

The US Dollar index (DXY), which gauges the buck vs. a bundle of its main competitors, remains on the defensive in levels below the 98.00 handle at the beginning of the week.

US Dollar Index focused on trade

The index is extending the leg lower on Monday, breaching the key support at 98.00 the figure on the back of the persistent improvement in the sentiment surrounding the risk-associated complex.

Indeed, the buck is adding to Friday’s losses in the 97.90 region – or fresh 2-week lows – amidst declining US yields and some negative headlines from the US-China trade front. In fact, Chinese officials have poured cold water over the prevailing optimism around the trade negotiations after President Trump hinted at the likelihood that tariffs could be rolled over.

In the US data space, the salient event will be on Wednesday when the FOMC releases its minutes from the latest meeting. Another couple of relevant events will include the Philly Fed manufacturing gauge and the final U-Mich print for the month of November.

What to look for around USD

The index seems to have charted a short-term top in the 98.50 region for the time being. In the meantime, headlines from the US-China trade dispute are expected to remain as the exclusive driver when comes to price action in the global markets. Other than that, investors stay focused on the recent US results in key fundamentals amidst declining yields and the steepening of the 2y-10y yield curve seen as of late. Moving to US politics, markets keep ignoring the Trump’s impeachment developments, while the impact on the FX space remains muted. On the broader view, however, the outlook on the greenback still looks constructive on the back of the Fed’s ‘wait-and-see’ mode vs. the dovish stance from its G10 peers, the dollar’s safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.08% at 97.92 and faces immediate contention at 97.81 (21-day SMA) seconded by 97.55 (200-day SMA) and finally 97.11 (monthly low Nov.1). On the flip side, a breakout of 98.45 (monthly high Nov.13) would open the door to 99.25 (high Oct.8) and then 99.67 (2019 high Oct.1).