US Dollar Index: scope for further gains

The US Dollar Index (DXY) – which gauges the buck vs. its main competitors – has recovered the smile at the end of the week, reverting yesterday’s retracement while refocusing on recent 7-month tops above the 98.00 handle.

The likeliness of the Federal Reserve tightening further its monetary policy at its December meeting remains the leitmotif behind the ongoing USD rally. Based on Fed Funds future prices, CME Group’s FedWatch tool now places the probability of a rate hike by year-end at 60%.

Yields in US money markets are reverting recent daily retracements although they keep the firm note in the upper end of the range, just off multi-month tops and thus extending the support to USD.

Looking ahead, today’s release of Retail Sales and Consumer Sentiment should be key for USD’s price action, mainly if we take into account the ‘data-dependent’ stance of the FOMC, as re-confirmed by Wednesday’s minutes. Later in the NA session, speeches by Boston Fed E.Rosengren (voter, dovish) and Chair J.Yellen at the Boston Fed Conference will also grab attention and keep the interest around the buck.

In the meantime, DXY keeps pushing higher, opening the door for a test of the 98.60 area, where sits March’s high and ahead of the ‘triple tops’ just below the 100.00 handle seen at the beginning of the year. Furthermore, the bullish note in USD remains intact while above the support line off 2016 low (May 3), today around 95.20.