US Dollar Index struggles the range, but for how long?
USD within the global basket is currently range-bound around the 90 handle, having tested resistance at the September low of 90.99 and is now looking for direction ahead of the Non-farm payrolls on Friday where investors will be looking for clues on just how much slack remains in the US labour market and whether wage inflation might steer the Fed into more or less action in 2018. 3 or 4 hikes?
Negative sway for the USD is President Trump`s desire to impose tarrifs on steel and aluminium imports from close allies but really aimed at China. He has rowed back to a certain extent, hinting that Canada and Mexico, the USA`s closest trade allies, might be exempted if a new and favourable NAFTA agreement is forthcoming. DXY and US treasuries yields fell in lockstep last week upon the breaking news. More of that lockstep to come? I believe so.
DXY has broken back into the descending channel and is currently attempting to re-test the bottom of the channel around 89.60. IF price breaks the channel bottom and fails to take support at 89.60 27th February low, then stronger support exists at the 26th February low of 89.42. Blow downside there and we can look for a determined challenge of the 89 handle. On the upside, DXY stands 89.72 at the time of writing and although under pressure, US 10`s have staged a rally today and currently challenge the 2.9% yield handle. If yields fail to capture that handle and consolidate below, DXY should slide some more. US 10`s currently at resistance 2.897 and yesterday`s high.
DXY Daily chart:
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