DXY inter-markets: temporary top in place?

The greenback – measured by the US Dollar Index (DXY) – is reverting two consecutive sessions with losses although it stays well on its way to close the week in the negative territory, reverting recent strong gains.

The strength in response to both testimonies by Chief J.Yellen earlier in the week has proved to be only a temporary boost for the buck. In the same line, supportive comments by FOMC members Rosengren, Lacker, Harker and Fischer plus very auspicious results in the US docket failed to ignite a more lasting upside reaction in the Dollar.

Markets could appear to be complacent when comes to further gains in the greenback despite expectations of a rate hike by the Federal Reserve as soon as the March meeting have picked up extra pace as of late. According to CME Group’s FedWatch tool and based on Fed Funds future prices, the probability of higher rates next month stays at just above 22% (from 31%). This week’s bull run to fresh tops in the 101.70 region has lacked of follow through and prompted sellers to quickly step in and thus trigger the ongoing leg lower.

Today’s up move in the DXY is happening without the support from US money markets, as yields have practically eroded earlier gains and are trading in the lower bound of the weekly range.

It appears DXY would need a more convincing catalyst to resume the upside on a more sustainable fashion (Trump’s fiscal plan unveiled?), leaving Wednesday’s top around 101.70 as an interim top for the time being. On the downside, the key level to watch is 99.20 (YTD low seen early in February).