US Dollar Index struggles for direction around 98.30

  • DXY returns to the 98.30 region after Thursday’s tops.
  • Yields of the US 10-year note rebound and approach 1.80%.
  • Retail Sales, flash U-Mich index due later in the day.

The US Dollar Index (DXY), which gauges the Greenback vs. a bundle of its main rivals, has returned to the comfort zone around 98.30/40 after climbing beyond 99.00 the figure on Thursday.

US Dollar Index now looks to data, FOMC

The index is navigating the red territory for the second day in a row on Friday, coming back to the 98.30 region following Thursday’s weekly peaks beyond the 99.00 mark on the back of a dovish ECB, optimism on the US-China trade front and auspicious CPI readings.

In fact, US inflation figures tracked by the Core CPI surprised to the upside in August, supporting the upside momentum around the buck. In addition, the ECB announced a package of looser monetary conditions at its meeting on Thursday, initially dragging EUR/USD to the area of 2019 lows, just to rebound sharply afterwards.

Yields of the US 10-year note dropped to the 1.66% region (and bounced) after US Secretary S.Mnuchin hinted on Thursday at the possibility that the US could issue a 50-year bond at some point in the near future. Mnuchin’s comments came after President Trump suggested on Monday that the US should refinance its debt load, which currently runs above $22.5 trillion.

Later in the NA session, Retail Sales for the month of August are due seconded by the preliminary gauge of the U-Mich index for the current month as well as July’s Business Inventories.

What to look for around USD

The Greenback managed to regain some poise on the back of positive data and fresh optimism from the trade front. At his last speech, Chief Powell reiterated his pledge to support the current expansion, while market participants are still factoring in potential interest rate cuts in the next meetings and a probable recession at some point in 2020. However, the constructive view in DXY still looks firm on the back of the solid labour market, strong consumer confidence and positive GDP readings, while inflation is seeing regaining upside traction in the near term. Also bolstering the buck emerges its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.03% at 98.33 and faces the immediate support at of 97.86 (monthly low Sep.11) followed by 97.78 (55-day SMA) and finally 97.17 (low Aug.23). On the upside, a breakout of 99.10 (high Sep.12) would aim for 99.37 (2019 high Sep.3) and then 99.89 (monthly high May 11 2017).

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