US Dollar Index posts weekly gains, remains under pressure

The greenback rose on Friday against the yen and European currencies after the NFP report, pushing the US Dollar Index to the upside. The DXY is about to end the week 0.40% higher, the second biggest weekly gain since April. It recovered after last week sharp decline, but continues under pressure, amid rising Euro bonds yields. 

DXY far from the highs 

The US Dollar reached on Wednesday 96.25, a 1-week high. It failed to hold above 96.00 and lost strength. ECB minutes on Thursday triggered a decline in European bonds, sending yields higher and boosted the euro. On Friday, the DXY bottomed at 95.50 after the NFP and then reversed. It peaked at 95.90 and near the end of the session was trading at 95.70. 

The 10-year bond yield reached on Friday at 2.398%, the highest in almost two months. At the same time, USD/JPY rose to 114.19, highest since mid-May. 

“Global markets have been characterised by the theme of rising bond yields and we expect this to continue in the week ahead. While the latest driving force has been the break out in 10-year Bund yields, robust US inflation data - as well as Chair Yellen raising the prospects of a September balance sheet policy announcement during her semi-annual testimony to Congress - should see the steepening bias in global yield curves persist”, said analysts from ING. 

Next Thursday, Janet Yellen will give testimony to Congress. Her words could have an impact on the market, that is looking for clues about the next rate hike and when the normalization of Fed’s balance sheet could start. 

Levels to watch

A consolidation significantly above 96.00 would support an extension of the upside correction. While on the flip side, a break below 95.50, could weaken the US dollar exposing 2017 lows. 

To the upside, immediate resistance for the US Dollar Index is seen at 95.90 (Jul 7 high), followed by 96.05 (Jul 4 high) and 96.40 (20-day moving average). On the opposite direction, support might lie at 95.45/50 (Jun 30 high / Jul 6 & 7 low) and 95.15/20 (2017 low).