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US Dollar Index drops to lows near 95.80

  • The index erases earlier gains to the 96.20 region.
  • Risk-off trade drags USD/JPY lower, hurting the buck further.
  • US government shutdown, trade continue to weigh on sentiment.

The greenback, in terms of the US Dollar Index (DXY), is trading on a sour note at the beginning of the new year, coming under selling pressure around the 95.80 region.

US Dollar Index looks to trade, shutdown

The index left behind initial gains during the Asian session, when poor prints from the Chinese Caixin manufacturing PMI gave a boost to the demand for the greenback.

However, sentiment has turned sour afterwards and is now propping up the buying bias around the safe haven Japanese Yen, in turn underpinning the leg lower in USD/JPY.

In the data space, New Home Sales and November trade data has been postponed due to the federal shutdown, leaving Markit’s manufacturing PMI for the month of December the only release for today.

What to look for around DXY?

The greenback finished last year up by more than 4%, partially offsetting the previous drop of nearly 10%. In the near term, the partial shutdown of the US government emerges as the immediate risk to the buck, while fresh optimism on the US-China trade front seems to have turned up following Trump-Xi talks over the weekend. In the same line, the Dollar should stay vigilant on the Trump-Powell effervescence on rates, while eyes should remain upon the renewed ‘data-dependent’ stance of the Fed and its rate path for the current year.

US Dollar Index relevant levels

As of writing the index is losing 0.17% at 95.89 and a break below 95.65 (low Jan.1) would open the door to 95.05 (low Oct.16 2017) and finally 94.22 (low Sep.24 2017). On the upside, the immediate hurdle emerges at 96.44 (10-day SMA) seconded by 96.77 (21-day SMA) and then 97.05 (high Dec.26).

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