US Dollar Pops On Growing Debt Ceiling Impasse And Asia Geopolitics

The US Dollar (USD) is clawing its way back after a dismal session at the start of the week. The US Dollar Index (DXY) shows signs of consolidation above a crucial support level, while the tail risk is being priced in after US chip manufacturer Micron got barred from China, with Japan and South Korea eager to take over the business. A mild positive tone was the summary at the end of the first day of negotiations about the US debt ceiling this week, with a deal still possible. 

On the macroeconomic data front, traders will be glued to their screens for the service numbers coming from the Purchase Managers Index (PMI) in the United States at 13:45 GMT. Add the Richmond Fed Manufacturing Index number for May briefly after that (14:00 GMT), and traders will have an excellent metric point to assess where to take the US Dollar next. On the other hand, a much lighter Fed speaker agenda on Tuesday, with only Fed’s Logan giving welcome remarks at a conference on technology-enabled disruption. 

Daily Digest: US Dollar Back In The Green 

  • US Dollar printed a new monthly high against the Chinese Yuan at 7.0671.
  • US President Joe Biden confirmed after talks with US House Speaker Kevin McCarthy that default is off the table. 
  • McCarthy came out and said talks were productive, but no deal yet. The tone of the discussion was better than before. 
  • The United States is working with allies like South Korea and Japan to circumvent chip supply disruptions after US chip manufacturer Micron got barred in China. 
  • Next to Neal Kashkari, Fed’s Jim Bullard supported at least one, preferably two, rate hikes on Monday.
  • Markets were briefly rattled on Monday by comments from Kashkari that the Fed will not bail out the US economy if a debt default occurs. 
  • The CME Group FedWatch Tool shows that markets are flip-flopping again after comments from Fed Chair Jerome Powell on Friday have priced out similarly a rate hike for June, while an initial rate cut has been delayed until September instead of July. 
  • The benchmark 10-year US Treasury bond yield trades at 3.72% and prints a new high for the past week. This could push the US Dollar higher and the DXY further in the green. 

US Dollar Index Technical Analysis: Can The Uptrend Continue?

The US Dollar Index (DXY) has taken out the 55-day and the 100-day Simple Moving Averages (SMA), respectively, at 102.52 and 102.87 on the upside. Support was held on Monday and confirmed continuation to the upside to challenge 103.61, the high of last Thursday. 

On the upside, 105.76 (200-day SMA) still acts as the big target to hit, as the next upside target at 104.00 (psychological level, static level) acts as an intermediary element to cross the open space.

On the downside, 102.86 (100-day SMA) is the first support level to ensure that. If that breaks down, watch how the DXY reacts at the 55-day SMA at 102.48 to assess any further downturn or upturn. 

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