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US Dollar Index recedes from YTD highs, back near 98.60

  • DXY gives away gains and drops to 98.60.
  • Markets’ attention remains on the Chinese coronavirus.
  • Fedspeak only due later in the session.

The greenback, when measured by the US Dollar Index (DXY), is giving away part of recent gains and retreats to the 98.60 region at the beginning of the week.

US Dollar Index looks to china, Fedspeak

The index is trimming part of last week’s significant advance to fresh 2020 highs in the 98.70/75 band, area last visited in October 2019.

Positive results in US fundamentals as of late in combination with safe haven demand following the outbreak of the Wuhan coronavirus and the potential impact on global growth have been sustaining the multi-session rally in the buck, lifting DXY to new yearly highs despite yields of the key US 10-year note dropped to the sub-1.60% area.

In the meantime, investors continue to digest Friday’s solid report from US Non-farm Payrolls for the month of January (225K) amidst a broad-based profit taking sentiment.

There will be no data releases in the US docket on Monday, although several Fed-speakers should keep the greenback in centre stage later: FOMC’s M.Bowman (permanent voter, centrist) will speak on “Community Banks”, San Francisco Fed M.Daly (2021 voter, centrist) speaks in Dublin and Philly Fed P.Harker (voter, dovish) will discuss “Economic Outlook”.

What to look for around USD

The index extended the rally to the vicinity of 98.70 during last week, recording at the same time new 2020 peaks. The recently published semi-annual Monetary Policy Report by the Fed showed an upbeat assessment of the economy and a resilient financial system. Following a neutral/dovish message from the FOMC at its latest meeting, investors should keep looking to the performance of US fundamentals and the broader risk appetite trends for direction as well as fresh developments from the Wuhan coronavirus. In the meantime, the outlook on the dollar remains constructive and bolstered by the current ‘wait-and-see’ stance from the Fed vs. the broad-based dovish view from its G10 peers, the ‘good shape’ of the domestic economy, its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the index is losing 0.08% at 98.62 and faces immediate contention at 98.19 (high Jan.29) seconded by 97.87 (68.2% Fibo of the 2017-2018 drop) and then 97.73 (200-day SMA). On the upside, a breakout of 98.72 (2020 high Feb.7/10) would aim for 98.93 (high Aug.1 2019) and finally 99.37 (high Sep.3 2019).

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