US Dollar Index recedes from tops near 97.80

• DXY fades part of the earlier spike to 2-week highs.
• Yields of the US 10-year note approach the 2% mark.
• US housing data came in mixed during May.

The US Dollar Index (DXY), which tracks the buck vs. a bundle of its main rivals, has regained fresh upside traction and clinched 2-week highs at 97.75 although it lost some momentum afterwards.

US Dollar Index bid on dovish ECB, looks to FOMC

The index picked up extra pace today and reversed the initial pessimism in response to the dovish message from the ECB’s Mario Draghi at his speech at the Sintra Forum.

In fact, Draghi assessed the possibility that the central bank could respond to a worsening scenario in Euroland via additional stimulus, including interest rate cuts.

In the meantime, investors are expected to remain cautious ahead of the FOMC meeting tomorrow, where the ‘dots plot’ and fresh forecasts are seen in centre stage, all amidst rising speculations of an ‘insurance cut’ as early as in July.

In the US data sphere, Housing Starts increased to 1.269M units, or 0.6%, and Building Permits rose to 1.294M units, or 0.3%.

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 gaining 0.10% at 97.63 and faces the next up barrier at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27). On the downside, a breach 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).