The US dollar is stable, close to its 2.5-week high, backed by higher US bond yields and the safe-haven status in conditions of mounting fears that the US-China trade war may deepen after Washington’s sanctions against Huawei Technologies.
The US Dollar Index, which measures the strength of the greenback against a basket for six major currencies, rose to 97.965 points, after touching 98.036 points during the night, which is its highest level since May 3. The index manages to leave behind yesterday’s pullback and has now reclaimed the key 98.00 are and above, resuming the underlying bullish move.
On the upside, the US Dollar Index will head towards the 2019 peaks beyond 98.30 points. A breakout of this area on a convincing fashion should open the door for a test of the Fibo retracement at levels just below 99.00 the figure. The broader constructive outlook is expected to prevail above key 200-day SMA at 96.37 and the +3-month support line at 96.46 points. This area of support is reinforced by a Fibo retracement of the 2017-2018 drop at 96.36 points.
The dollar takes advantage of its safe-haven status and attracts demand in such cases as equities fall and market volatility increases. The rebound in US bond yields is the other factor that supports the currency. The recent decline in 10-year bond yields seemed exaggerated, and Federal Reserve Chairman Jerome Powell did not give clear messages to cut interest rates this year, so recovery of bond yields may last for some time.
Fed Chairman Jerome Powell said on Monday it was too early to assess the impact of trade and imports on monetary policy.
The yield on the 10-year bonds continued to rise and reported an 8-day high of 2.428%. the returns dropped to 2.354% last week, which is the lowest since March 28, largely due to weak US retail sales data.
The Euro fell slightly to 1.1165 USD on Tuesday after climbing to 1.1150 USD in the previous session, which is the lowest level since May 3. The single European currency is expected to remain unstable until the European Parliament elections of May 23-26.
On the release front, there are no major events for a second successive day. The eurozone releases consumer confidence and the US posts existing home sales.
The EUR/USD exchange rate consolidated in a narrow range. Important levels to watch are 1.1134-1.1128 USD with the FOMC Minutes should be the next catalyst.
The US dollar rose 0.15% against the Japanese yen, to 110.195 JPY, and on Monday it even touched a two-week high of 110.32 JPY for a moment.
The American currency strengthens against most major rivals this Tuesday, with the USD/JPY pair holding afloat above the 110.00 level. The greenback got an extra boost from US Fed Chief Powell, who cooled down prospects of a rate cut in the world’s largest economy.
Speaking in Florida, Powell said it would be premature to judge the effects of the trade war, adding that he doesn’t believe it could affect the central bank’s stance. He said that “using an inflation range is an option that could be reviewed”, and that he doesn’t see any threat to the dollar as a reserve currency.
The USD/JPY pair pressures the 61.8% Fibo retracement of its latest daily decline, headed north, according to technical readings in the 4 hours chart, given that the 20 SMA keeps advancing below the current level and providing intraday support. Technical indicators in the mentioned chart head higher within positive levels, although the 100 SMA caps the upside with a bearish slope at around 110.40. Chances of a firmer recovery would be higher on a break above this last.
Support levels are 110.00 JPY, 109.65 JPY, and 109.30 JPY, while the resistance levels are 110.40 JPY, 110.85 JPY, and 111.10 JPY.