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Extension to a fresh 10-day high at 97.70 in the late Asian session

 

Despite an extension to a fresh 10-day high at 97.70 in the late Asian session, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, spent the majority of the day under pressure, erasing all of its daily gains and dropping to a daily low at 97.15 in the first half of the NA session.

Unable to make a meaningful recovery, the index has been spending the last couple of hours in a tight range, consolidating its losses. As of writing, the index was at 97.20, down 0.13% on the day.

Other than the initial knee-jerk reaction, the macro data from the U.S. didn’t bring a sustainable volatility to the markets. Instead, the greenback’s price action was driven by the falling U.S. Treasury-bond yields. At the moment, the 10-year reference was losing 1.63% while the 2-year reference was down 1.25%. 

  • Fed’s Brainard: Another U.S. rate hike likely appropriate soon

On Tuesday, the risk aversion seems to be the main theme in the markets, pushing all of the major global equity indexes lower and increasing the overall demand for safer assets like the T-bonds.

The political drama in the U.S. is becoming apparent again with President Trump’s Communications Manager, Mike Dubke, resigning on Tuesday, further hurting the market sentiment. However, ahead of Friday’s Non-farm Payroll report, investors may refrain from taking heavy positions as a strong reading could increase the odds of more rate hikes after the Fed’s June meeting.

  • Fed is likely to keep policy on hold through the second half of 2017 – Rabobank
  • CME Group FedWatch June hike probably virtually unchanged post-US data

Technical outlook

The initial support for the index could be seen at 97 (psychological level) before 96.70 (May 23 low) and 95.90 (Nov. 11 low). On the upside, short-term resistances line up at 97.50 (May 26 high), 98 (May 18 high/psychological level) and 98.75 (May 16 high).

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