The US Dollar Index (DXY) rose again and returned to the 96.40 level on Thursday.
- Currently trading at 96.40, the DXY is past Wednesday’s pullback.
- Since the FOMC protocol was released, US yields have continued rising.
- The initial jobless claims, the ISM for the non-manufacturing sector, and the trade balance figures will provide further fresh stimulus to the market.
US dollar index rose amid firm yields ahead of key data releases.
DXY fundamental analysis: rising yields and Hawkish FOMC to support
Market participants continue to digest the hawkish nature of the FOMC minutes released late Wednesday as the index reverses the retracement seen in the previous session towards 96.40 in the second half of the week.
As a matter of fact, the December minutes suggest that March will be another hectic event, leading to speculation about three or four rate hikes in the face of a steadily improving labor market and rising inflation. As a result, a rate hike is almost 70% likely at the March 16 meeting, according to the CME FedWatch Tool.
In response to Wednesday’s release of the minutes, US yields rose along the curve, which caused the dollar to make some gains on Thursday and return to positive territory.
Today is an interesting day for the USA. The ISM Non-Manufacturing report is in the spotlight, along with regular weekly claims reports, trade totals, and production orders for November.
What to look for in US dollars?
The index trades above 96.00, helped by yield growth, particularly after the FOMC report (Wednesday) conveyed a more restrictive stance. While markets slowly return to normal, the dollar will likely benefit from the Fed’s intention to raise rates at the end of the year amid persistently high inflation, a favorable outlook of Fed, higher yields, and stable performance in the US economy.
Key events in the US this week
- Initial Jobless Claims
- ISM Non-Manufacturing and Manufacturing Orders
- Trade Balance (Thursday)
- Non-farm Payroll, Unemployment Rate (Friday)
Some important hurdles that may hamper the rise of DXY
- The beginning of the Fed’s tightening cycle
- US-China trade conflict during the Biden administration
- Debt limit problem
- Possible geopolitical explosion against Russia and China
DXY technical analysis: bulls supported by SMAs, candles
The DXY dollar index trades in a consolidating range above the 96.00 level. The price remains supported by the 20-day SMA ahead of the 50-day SMA. The rectangular pattern suggests an upcoming trading opportunity on either side. However, the technical indicators show clues of a bullish breakout. In the last four candles, we have one bullish engulfing bar and a bullish pin bar. Both are strong bullish signals. If the bullish breakout occurs, we may see a test of recent swing highs at 97.00.
Alternatively, if we see a bearish breakout below 95.50, we can see a slip towards 95.00 ahead of a double bottom at 94.60. The same level has coincided with the 200-day SMA as well.
