US Dollar Index comes under pressure near 97.30

  • DXY eases from YTD high, back near 97.30.
  • US, China expected to sign trade deal on Wednesday.
  • Producer Prices, Empire State index, Beige Book, Fedspeak all in the docket.

The US Dollar Index (DXY), which gauges the buck vs. a bundle of its main rivals, is trading slightly on the defensive in the 97.30 region ahead of the opening bell in the Old Continent on Wednesday.

US Dollar Index focused on trade, docket

The index managed to once again test the area of yearly highs near 97.60 on Tuesday – also coincident with the 55-day SMA – although it failed to advance further north, sparking in consequence the ongoing knee-jerk to the 97.30 region.

Poor results from inflation figures during last month dragged yields of the key 10-year note to the 1.80% neighbourhood on Wednesday, some 6 bps lower than Monday’s peaks.

In the meantime, the main focus of attention on Wednesday will be the sign of the US-China’s ‘Phase One’ deal. In this regard, US Treasury Secretary S.Mnuchin said on Tuesday that the US will maintain tariffs on Chinese products until a ‘Phase Two’ of the trade deal is completed. It is worth recalling that under the current deal, China pledged to buy and extra $200 billions of US goods and services in the next two years.

In the US data space, December’s Producer Prices are due seconded by the Empire State manufacturing gauge, the EIA’s weekly report on US crude oil inventories and the Fed’s Beige Book. Additionally, Philly Fed P.Harker (voter, dovish) and Atlanta Fed R.Kaplan (voter, dovish) are due to speak.

What to look for around USD

The upside momentum in DXY has so far met interesting resistance in the area of yearly highs around 97.60 amidst disappointing CPI figures and rising optimism ahead of the sign of the ‘Phase One’ deal with China. So far, the recovery in the greenback continues to target the key 200-day SMA in the 97.70 region. Above this level, DXY should regain the constructive view, always underpinned by the current ‘wait-and-see’ stance from the Fed (confirmed once again at the latest FOMC minutes) 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 index is losing 0.04% at 97.35 and faces the next support at 97.20 (21-day SMA) seconded by 96.36 (monthly low Dec.31) and finally 96.04 (50% Fibo of the 2017-2018 drop). On the upside, a breakout of 97.58 (2020 high Jan.9) would open the door to 97.69 (200-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop).

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