US Dollar Index flat around 99.00 ahead of data

• DXY recedes to the 99.00 area after Tuesday’s YTD highs.
• Yields of the US 10-year note fell to sub-1.45% levels
• Trade Balance, Fedspeak due later in the day.

The Greenback, tracked by the US Dollar Index (DXY), is struggling for direction in the 99.00 neighbourhood on Wednesday.

US Dollar Index trims gains on poor data, recession fears

After hitting fresh 2019 highs in the vicinity of 99.40 on Tuesday, the index gave away part of those gains after the always critical ISM manufacturing surprised to the downside in August, slipping back into contraction territory for the first time since 2016.

The poor print from the ISM prompted US yields to drop further and re-ignited concerns that a potential US recession could be in the offing and likely to develop at some point in 2020/2021.

In today’s docket, the Trade Balance figures will be in centre stage along with the speech by New York Fed J.Williams (permanent voter, centrist). In addition, FOMC’s M.Bowman (permanent voter, centrist) and St. Louis Fed J.Bullard (voter, mega-dovish) will address a ‘Fed Listens’ event, Minneapolis Fed N.Kashkari (2020 voter, dovish) speaks in Townhall and Chicago Fed C.Evans (voter, centrist) will speak on North American Trade.

What to look for around USD

News that US and China are struggling to return to the negotiating table and the US economy could be heading into a recession weighed on the buck as of late. The rally in the Greenback appears to be taking a breather for the time being amidst another sell off in US yields to fresh lows. Therefore, DXY is expected to remain vigilant, as Chief Powell’s ‘mid-term adjustment’ could extend further in the next months in order to ‘sustain the expansion’, opening the door to potential extra rate cuts. On the positive side for USD emerge the solid labour market, strong consumer confidence and positive GDP readings, while inflation is seeing regaining upside traction in the near term.

US Dollar Index relevant levels

At the moment, the pair is down 0.03% at 98.93 and a breach of 98.11 (21-day SMA) would open the door to 97.17 (low Aug.23) and finally 97.06 (200-day SMA). On the flip side, the next up barrier lines up at 99.37 (2019 high Sep.3) seconded by 99.89 (monthly high May 11 2017) and then 100.00 (psychological level).