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US Dollar Index extends the bounce beyond 96.70

  • The index moves higher and clinches tops near 96.70.
  • US 10-year yields drop to fresh lows near 2.65%.
  • US December Manufacturing PMI up next in the docket.

The US Dollar Index (DXY), which tracks the greenback vs. a basket of its main rivals, is now extending the daily rebound further and is challenging daily highs in the 96.70 region.

US Dollar Index up despite lower yields

After bottoming out in the proximity of 95.80 during early trade, the index met some dip-buyers and it has not only reclaimed the 96.00 handle but it has also extended the recovery to daily 4-day tops in the 96.70 zone.

The bounce in the buck follows a pick up in the risk-off trends and comes despite the persistent decline in yields of the key US 10-year note to fresh 8-month lows in the 2.65% neighbourhood.

In the US data space, some publications have been postponed due to the partial US government shutdown, while Markit will release its manufacturing PMI for the last month of 2018.

What to look for around DXY?

DXY ended last year gaining more than 4%, partially offsetting the previous drop of almost 10%. In the meantime, the continuation of the US shutdown carries the potential to hurt the sentiment in case it remains unsolved, while the uncertainty around the US-China trade spat could somewhat cap the downside. Further out, the divergence in opinions on rates between Trump and Chief Powell could spark some volatility in the buck at the time when investors keep scrutinizing the Fed’s rate path for the current year.

US Dollar Index relevant levels

As of writing the index gains 0.69% at 96.72 and faces the next resistance at 96.81 (21-day SMA) seconded by 97.54 (high Nov.28 2018) and then 97.71 (2018 high Dec.14). On the downside, 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).

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