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US Dollar Index met support near 97.40, the 10-day SMA

  • DXY loses the grip and tests lows near 97.40.
  • Trump keeps pushing for tariffs on EU cars.
  • US 10-year yields break below 1.80%.

The US Dollar Index (DXY), which tracks the buck vs. a bundle of its main competitors, remains on the backfoot following the opening bell in Wall St on Tuesday.

US Dollar Index supported at the 10-day SMA near 97.40

The index accelerated the daily correction lower amidst declining US yields and the positive performance of some of its main rivals, namely the euro and the British pound.

In fact, above-forecasts results from the EMU/German ZEW Survey for the current month plus auspicious prints from the UK’s labour market report gave extra wings to the riskier assets and undermined any bullish attempts in the buck.

In the meantime, initial jitters following the Chinese outbreak of the Wuham coronavirus look somewhat alleviated and are also sustaining the inflows to the riskier assets.

On another front, President Trump hinted at the probability that the US could impose tariffs on EU cars if a deal is not clinched. Trump spoke at the World Economic Forum (WEF) in Davos earlier today and is expected to meet European leaders with tariffs on top of the agenda.

Later this week, Existing Home Sales, weekly Claims and advanced PMIs will be in centre stage in the US docket.

What to look for around USD

DXY has started the week on a defensive fashion following 2020 highs in the 97.70 area, coincident with the critical 200-day SMA. The resurgence of some risk-aversion in the global markets have been weighing on the greenback in past hours, leaving the 97.70 region as a potential near-term top for the time being. On another scenario, investors are now looking to domestic data releases for direction in the short-term horizon amidst ‘radio silence’ from the US-China trade front. The index should regain the constructive view above the 200-day SMA, 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 0.13% at 97.49 and faces immediate contention at 97.09 (weekly low Jan.16) followed by 96.36 (monthly low Dec.31) and finally 96.04 (50% Fibo of the 2017-2018 drop). On the upside, a breakout of 97.73 (2020 high Jan.20) would open the door to 97.87 (61.8% Fibo of the 2017-2018 drop) and then 97.89 (100-day SMA).

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