USD index: Recovery appears capped ahead of 93.60

The US dollar, when measured against a basket of six major currencies, traded largely subdued almost throughout the Asian session, although managed to derive some support from a positive tone seen around the US Treasury yields across the time horizon.

The USD index failed to sustain the overnight rebound and dropped back to test the 94.50 support, as the sentiment around the greenback was hit by the renewed concerns about the progress of the US tax reform bill, which almost negated the positive impact of upbeat US retail sales release.  

On late-Thursday, two more Republican Senators advised changes to the proposed tax reform bill, which could potentially hamper the US President Trump’s efforts to get the tax bill passed.

Moreover, the US currency also remains depressed as the Fed’s caution about low inflation overshadows a 25bps hike in the rates while a Republican loss in the Alabama Senate election further keeps the USD bulls on the back foot.

Shin Kadota, Senior strategist at Barclays in Tokyo, noted: “(The US tax bill) Negotiations tend to last until the last minute in these kinds of situations. So it is not surprising, especially as those seeking changes to the bill were likely emboldened by the Republican’s defeat at Alabama.”

Attention now turns towards the US industrial production and Empire State Manufacturing index for near-term trading opportunities.

USD index Technical Levels:

To the upside, resistances are aligned at 93.76 (Dec 14 high), 94.00 (round number) and 94.21 (4-week tops). The spot finds the supports at 93.24 (100-DMA), 93.00 (round figure) and 92.76 (Nov 28 low).