- DXY plunges to multi-week lows near 98.40 on Friday.
- Coronavirus fears remain unabated and support safe havens.
- Personal Income, Spending, PCE, U-Mich next on tap.
The US Dollar Index (DXY), which measures the greenback vs. a bundle of its main competitors, remains well under pressure on Friday around the 98.40 area.
US Dollar Index weaker on COVID-19, Fed
The index is alternating gains with losses at the end of the week following Thursday sharp sell-off amidst unremitting coronavirus fears, rumours of Fed easing and month-end flows. The dollar posted its worst day on Thursday since late August 2019.
In fact, new cases of coronavirus continue to be reported around the world and they have already surpassed those diagnosed in China, all morphing into further concerns over the impact on global growth prospects.
In addition, speculations that the Fed could reduce its FFTR as soon as the March meeting have been also weighing on the buck in past hours, forcing DXY to extend the leg lower to the 98.40/35 band, or 3-week lows. Indeed, and measured by the CME Group’s FedWatch Tool, the probability that the Fed could cut rates in March is now at more than 97% (from Wednesday’s around 35% and nearly 9% from a week earlier).
Later in the NA session, Personal Income/Spending will be in the limelight along with inflation figures tracked by the PCE for the month of January, advanced Trade Balance results, the Chicago PMI and the final February print of the U-Mich index.
In addition, St. Louis Fed J.Bullard (2022 voter, dovish) will discuss Economy and Monetary Policy.
What to look for around USD
The index charted the largest single-day drop since late August 2019 on Thursday, as markets remain in panic-mode in response to the advance of the COVID-19 outside of China, which at the same time re-ignited speculations that the Fed could move on rates in the very near-term. The outlook on the buck now looks somewhat compromised: despite further retracements are not ruled out, its outlook still appears constructive and bolstered by the current “appropriate” monetary stance from the Fed (once again confirmed at the FOMC minutes last week) vs. the broad-based dovish view from its G10 peers, the “good shape” of the domestic economy, the buck’s safe haven appeal and its status of “global reserve currency”.
US Dollar Index relevant levels
At the moment, the index is losing 0.01% at 98.38 and faces the next support at 98.17 (50% Fibo retracement of the 2020 rally) seconded by 97.83 (200-day SMA) and then 97.75 (61.8% Fibo retracement of the 2020 rally). On the flip side, a breakout of 99.09 (23.6% Fibo retracement of the 2020 rally) would open the door to 99.91 (2020 high Feb.20) and finally 100.00 (psychological barrier).
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