US Dollar Index comes under pressure near 97.50

• DXY fades Tuesday’s advance and tests the mid-97.00s.
• US 10-year yields remain depressed in the sub-1.70% area.
• US-China trade war stays in centre stage so far this week.

The greenback, in terms of the US Dollar Index (DXY), has resumed the downside on Wednesday and is now navigating the 97.50 region.

US Dollar Index focused on trade, looks to yields

The index is extending the negative momentum so far this week, coming under fresh selling pressure in response to the recent escalation in trade tensions between China and the US.

Against this backdrop, yields of the key US 10-year note have returned to the area of 3-year lows around 1.67%/1.66% along with the resumption of the demand for safe haven currencies like JPY and CHF.

In the US data space, a light docket includes MBA Mortgage Applications, the EIA weekly report on US crude oil supplies and June’s Consumer Credit figures.

What to look for around USD

The fresh bout of US tariffs on Chinese products has undermined the Fed-led rally in the buck to levels last seen in May 2017 near 99.00 the figure, sparking a sharp leg lower to the area just above the critical 200-day SMA. By the same token, yields of the US 10-year benchmark have dropped to multi-year lows in the sub-1.70% area, where some support appears to have emerged. In the meantime, the US-China trade war is expected to remain the almost exclusive driver of the global sentiment for the time being, although an eventual deal in the next months looks highly unlikely. Regarding the greenback, its demand appears propped up by its safe have appeal, the status of ‘global reserve currency’, solid US fundamentals and the less dovish stance from the Federal Reserve.

US Dollar Index relevant levels

At the moment, the pair is losing 0.06% at 97.52 and a breakdown of 97.21 (low Aug.6) would open the door to 96.92 (200-day SMA) and then 96.67 (low Jul.18). On the other hand, the next up barrier emerges at 97.94 (10-day SMA) followed by 98.37 (monthly high May 23) and then 98.93 (2019 high Aug.1).

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