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US Dollar takes a nose dive, drops below 93 amid political jitters

  • Flynn is said to testify against Trump in Russia probe.
  • US 10-year T-bond plummets on flight-to-safety.
  • Wall Street suffers heavy losses.

After advancing to a fresh session high at 93.21 on upbeat macroeconomic data releases from the United States, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, encountered a massive selling wave and slumped to its lowest level in five days at 92.56. Following the initial sell-off, the index is now staging a modest recovery and was last seen at 92.76, down 0.23% on the day.

Russiagate investigation heats up

On Friday morning, Michael Flynn, Trump's ex-national security adviser, was taken into custody after he pleaded guilty to lying to the FBI during the investigation of Russia's involvement in the 2016 presidential election. Following this development, Brian Ross of ABC News reported that Flynn was ready to cooperate and was prepared to testify that as a candidate, Donald Trump had directed him to make contact with the Russians.

The markets reacted quickly to the news and investors moved away from risky assets, which weighed on the US Treasury-bond yields. The 10-year reference lost as much as 4% with the knee-jerk reaction and was down 2% at 2.36% as of writing. In the meantime, both the Dow Jones Industrial Average and the S&P 500 indexes dropped more than 1% before retracing a portion of their losses and were still down around 0.7%.

In the meantime, the number of Senators who voice their support for the tax bill continues to increase on Friday, which ramps up the expectations of the bill passing through the Senate later today. A positive outcome on that end could help the greenback continue to recover its losses. On the other hand, investors are likely to remain on edge until they see how much of an impact today's plea hearing will have on the markets.

Technical levels to consider

In case the index retakes the 93 (psychological level) handle, it could aim for 93.50 (Nov. 30 high) and 94.60 (Nov. 7 high). On the downside, supports could be seen at 92.40 (Nov. 27 low), 92 (psychological level) and 91 (psychological level/Sep. 8 low). 

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