US Dollar Index holds onto recovery gains amid broad risk aversion
- DXY keeps recovery gains from six-month lows.
- Concerns surrounding the US-China phase-two talks, US-Iran tension favor the greenback’s safe-haven appeal.
- The US ISM Manufacturing PMI, FOMC minutes and trade/political headlines will be watched for fresh impulse.
US Dollar Index (DXY) stays on the recovery mode while taking the bids to 96.82 ahead of Friday’s European session. The greenback previously benefited from the year-end consolidation, mixed data while the latest geopolitical tension from the Middle East added strength to the greenback.
On early Friday in Asia, the US conducted airstrikes in Baghdad and confirmed the killing of Iranian Major-General Qassem Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis. In a reaction, markets turned risk-off as this leads to a severe tussle between the US and Iran who were already at the loggerheads off-late.
Read: CFR's Haas: Prepare for all sorts of Iranian retaliation
Also, support the US dollar’s (USD) risk-safety demand is receding optimism concerning China’s economic growth and ease of phase-two talks.
As a result, global bonds remain on the back foot while Asian equities and S&P 500 Futures mark losses.
Looking forward, traders will keep eyes on the trade/political headlines to gauge how the US reacts to Iranian threats. Additionally, December month ISM Manufacturing PMI and FOMC minutes will decorate the economic calendar.
While the ISM gauge is likely to improve, but stay below 50.00, the FOMC minutes are expected to reiterate the Fed’s recent tune that praises present monetary policy and await fresh clues. However, a modestly hawkish tone is also expected and can help the greenback stay positive.
Technical Analysis
October-November lows near 97.15 are on the buyers’ radar now unless the quote slips below 96.35.