US Dollar Index bounces off lows near 96.70

The index meets support in the 96.70 region.
US-GE 10-year yield spread supports the rebound.
US trade deficit shrubk to $51.10 billion in January.

Pablo Piovano FXStreet

The US Dollar Index (DXY), which tracks the buck vs. a basket of its main competitors, is regaining some ground and manages to leave behind the area of daily lows in the 96.70/65 band.

US Dollar Index up on yields, data

The greenback keeps cutting earlier losses following positive results from the US docket and always against the backdrop of alternating risk-appetite trends.

DXY is also deriving support from the US and German money markets, where the yield spread differentials in the benchmark 10-year bonds remain supportive of the buck.

In the data space, January’s trade deficit surprised to the upside, shrinking to $51.1 billion vs. $57.0 billion expected and December’s $59.9 billion.

What to look for around USD

The greenback stays under the microscope for the time being while market participants continue to adjust to the prospects of no hikes from the Fed this year and just one rate raise in 2020. Further attention falls on the inversion of the US yield curve, which is seen as a prologue for a probable recession in a year’s time-ish. On the supportive side, the buck could gather some traction in case of souring risk appetite and widening rate differentials vs. its peers. From the political view, the debt ceiling, the border-wall funding and upcoming elections next year carry the potential to spark bouts of extra volatility around USD.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.01% at 96.80 and a breakout of 97.37 (high Feb.15) would open the door for a test of 97.71 (2019 high Mar.7) and finally 97.87 (monthly high Jun.20 2017). On the other hand, the immediate support lines up at 96.40 (55-day SMA) followed by 95.88 (200-day SMA) and then 95.74 (low Mar.20).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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