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US Dollar Index comes under pressure below 97.30

  • DXY remains on the defensive following US data releases.
  • US, China to sign the ‘Phase 1’ trade deal later.
  • US Empire State index surprised to the upside.

The greenback, when measured by the US Dollar Index (DXY), remains under pressure in the middle of the week around the 97.30/20 band.

US Dollar Index offered ahead of US-China deal

After two consecutive daily advances and persistent failed attempts to break above the 97.60 region – coincident with the 55-day SMA and YTD highs – the index has now come under selling pressure and is flirting with the 21-day SMA near 97.20, or weekly lows.

The dollar met extra selling bias after US headline Producer Prices rose just 0.1% on a monthly basis during December, missing initial estimates. The same direction followed the Core print, rising 0.1% from a month earlier. On the brighter side, the regional manufacturing gauged tracked by the Empire State index improved to 4.80 for the current month, also beating consensus.

Later in the session, the US and China will finally sign the ‘Phase 1’ trade deal. In the docket, the EIA will publish its weekly report on US crude oil supplies and the Fed will release the Beige Book. In addition, Philly Fed P.Harker (voter, dovish) and Atlanta Fed R.Kaplan (voter, dovish) are due to speak.

What to look for around USD

The upside momentum in DXY has so far met solid resistance in the area of yearly highs around 97.60 amidst disappointing CPI figures and rising optimism ahead of the signing of the ‘Phase 1’ deal with China and with optimism ahead of the negotiations regarding the 'Phase 2' deal already runnning high. So far, the recovery in the greenback continues to target the key 200-day SMA in the 97.70 region. Above this level, DXY should regain the constructive view, always underpinned by the current ‘wait-and-see’ stance from the Fed (confirmed once again at the latest FOMC minutes) vs. the broad-based dovish view from its G10 peers, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the index is losing 0.14% at 97.25 and faces the next support at 97.20 (21-day SMA) seconded by 96.36 (monthly low Dec.31) and finally 96.04 (50% Fibo of the 2017-2018 drop). On the upside, a breakout of 97.58 (2020 high Jan.9) would open the door to 97.69 (200-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop).

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