US Dollar firm near 89.70, focus on Treasury issuance
- DXY remains bid, in 4-day tops near 89.70.
- US 2-year yields tested 2.25%, highest since September 2008.
- US markets back to normalcy after President’s Day holiday.
The US Dollar Index (DXY), which gauges the buck vs. a basket of its main competitors, is extending the weekly rebound to the area of 89.70, or 4-day peaks.
US Dollar attention to bond market, FOMC
The index continues to march north on Tuesday, navigating the area of multi-day tops in the 89.70 region backed by a persistent pick up in the demand for the buck.
The upside momentum in USD has been sustained by a healthy rebound in yields of the US money markets, showing at the same time that the correlation between USD and yields appears to have flipped.
In this regard, yields of the 2-year note has climbed to the boundaries of 2.25% earlier in the session, levels last visited in September 2008, while the key 10-year reference has eased off daily highs near 2.93% and returned to the 2.90% neighbourhood.
Looking ahead, the up move in USD appears propped up by the massive $258 billion Treasury issuance expected this week.
In the events-space, the FOMC minutes will be published tomorrow. Market participants will look for extra details on the prospects of further tightening by the Federal Reserve throughout the year, while attention should also be on Fed-speakers ahead in the week: Kashkari, Quarles, Dudley, Kaplan (Thursday), Mester, Williams (Friday).
What will we be looking at around the buck? In the short term, protectionism, risk appetite trends, renewed deficit concerns, higher inflation and liquidity conditions remain poised to drive the sentiment around the greenback in the medium to longer run.
US Dollar relevant levels
As of writing the index is up 0.58% at 89.73 and a break above 90.57 (high Feb.8) would aim for 91.00 (high Jan.18) and then 91.34 (55-day sma). On the flip side, the immediate support aligns at 88.26 (2018 low Feb.16) seconded by 88.13 (200-month sma) and finally 86.88 (support line off 72.70).