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US Dollar Index comes under pressure near 97.40

  • DXY moves lower following recent tops around 97.50.
  • Yields of the US 10-year note drop to the 2.08% area.
  • Building Permits, Housing Starts next of relevance.
The greenback, in terms of the US Dollar Index (DXY), is giving away part of its recent gains and recedes to the 97.40 region on Tuesday.
US Dollar Index looks to data

The index is losing ground for the first time since last Wednesday following disappointing results from the US calendar at the beginning of the week and unabated speculations of probable rate cuts by the Fed in the next months. It is worth recalling that the key Empire State Index dropped to the lowest level since October 2016 at -8.6, while the NAHB index also came in on the weak side yesterday.

In the meantime, cautiousness among investors is expected to keep growing ahead of the critical FOMC meeting on Wednesday, where all the attention will be on the Committee’s views on the potential shift of the monetary stance.

Later in the day, Housing Starts and Building Permits will be the only publications of note in the docket.

What to look for around USD

Markets participants continue to price in the likelihood of rate cuts by the Fed in the next months and this is somehow limiting upside potential in the index. While an ‘insurance cut’ looks likely sooner than later according to market chatter, the upcoming FOMC meeting should shed more light on to the issue and is expected to give further details on the impact of trade tensions on the US economy. However, and in spite of some disappointing results in US fundamentals as of late, the labour market remains strong, wage growth keep pushing higher and the overall economy looks healthy - specially when we consider the weakness in overseas economies – all begging the question whether current speculations of rate cuts are not overdone.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.12% at 97.41 and a breakdown of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28). On the flip side, the next hurdle emerges at 97.60 (high Jun.17) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27).