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  • DXY navigates the sub-97.00 area amidst risk-off mood.
  • Geopolitics keeps dominating the sentiment on Monday.
  • Markit’s Services PMI only of note in the US docket.

The greenback, in terms of the US Dollar Index (DXY), is giving away part of Friday’s gains and returns to the sub-97.00 region following an ephemeral move to the 97.10 area.

US Dollar Index looks to geopolitics, China

The index is trading slightly in the negative territory at the beginning of the week, easing some ground after Friday’s tops in the 97.10 region, all against the backdrop of declining US yields and rising cautiousness following the recent US-Iran effervescence.

In fact, the ongoing risk-off sentiment keeps favouring the demand for safe havens like the Japanese yen, bonds and gold, putting the buck under some extra downside pressure for the time being.

Further out, 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.

Later in the NA session, Markit will publish its final print of December’s Services PMI. 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 0.01% at 96.88 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).