US Dollar Index eases from 2020 highs

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9 months ago

The greenback has receded some ground after hitting fresh 2020 highs just pips away from the 99.00 mark on Tuesday when measured by the US Dollar Index (DXY).

US Dollar Index focused on China, data
After climbing as high as the boundaries of 99.00 the figure on Tuesday, the index closed the session in red figures following easing concerns on the Wuhan coronavirus (COVID-19, as per the World Health Organization) and amidst a tepid rebound in US yields.

In his testimony before the House Financial Services Panel, Chief J.Powell warned that the COVID-19 could impact on the global economy and that the Federal Reserve is closely watching the potential effects (if any at all) of the virus on the domestic front. Powell also reiterated that the economy is in “a good place” and that the Fed remains ready to act accordingly if developments motivate the central bank to make a material reassessment of the economic outlook.

Later today, Powell’s second testimony, now before the Senate Banking Committee, should fall in line with the one delivered on Tuesday. In addition, Philly Fed P.Harker (voter, dovish) will discuss the Economic Outlook. Data wise, MBA’s Mortgage Approvals and the Monthly Budget Statement are only due.

What to look for around USD
The index extended the rally to the vicinity of 99.00 at the beginning of the week, levels last traded in October 2019. 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 any fresh developments from the COVID-19. In the meantime, the outlook on the buck 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, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels
At the moment, the index is gaining 0.02% at 98.77 and a breakout of 98.95 (2020 high Feb.11) would aim for 99.00 (psychological mark) and finally 99.37 (high Sep.3 2019). On the other hand, initial contention emerges at 98.19 (high Jan.29) seconded by 97.87 (68.2% Fibo of the 2017-2018 drop) and then 97.74 (200-day SMA).

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