US Dollar Index looks to regain 98.00, focus stays on trade

• DXY breaks below 98.00, or 2-week lows.
• US 10-year yields approach 1.85%.
• US-China trade concerns back to centre stage.

The greenback, in terms of the US Dollar Index (DXY), is recovering part of Monday’s pullback and is now approaching the key barrier at 98.00 the figure.

US Dollar Index focused on trade

The index came under moderate downside pressure at the beginning of the week following a new round of trade concerns and poor results from the US manufacturing sector.

Indeed, the White House announced it will raise tariffs on US imports of steel from Brazil and Argentina. In addition, President Trump casted a new mantle of doubt over the existing optimism on a trade agreement with China after the latter keeps pushing for a rollover of all existing tariffs as a conditia sine qua non to sign the ‘Phase One’ deal.

Extra weakness in the buck came after the ISM Manufacturing PMI dropped to 48.1 during November, clinching the fourth consecutive month in the contraction territory and triggering at the same time speculations over the health of the US manufacturing sector. The ISM reading contrasts with the view from the PMI gauged by Markit, which extended the recovery to 52.6, level last seen back in April.

Absent releases in the US docket today, the focus of attention is expected to remain on the trade front ahead of Wednesday’s USM Non-Manufacturing and the ADP report for the month of November.

What to look for around USD

DXY gave away gains on Monday and breached the 98.00 support in response to trade jitters and disappointing results from the US manufacturing sector. That said, any recovery is expected to hinge on developments from the US-China trade front as well as improvement in the US docket against the backdrop of the ‘wait-and-see’ stance from the Fed. On the broader view, however, the outlook on the greenback still looks constructive on the back of a cautious Fed vs. the broad-based dovish stance from its G10 peers, the ‘good shape’ of the US economy, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is advancing 0.03% at 97.92 and a breakout of 98.54 (monthly high Nov.29) would open the door to 99.25 (high Oct.8) and then 99.67 (2019 high Oct.1). On the flip side, immediate contention emerges at 97.81 (monthly low Dec.2) seconded by 97.68 (low Nov.18) and finally 97.63 (200-day SMA).