US Dollar Rally Continues As US Credit Downgrade Looms

The US Dollar (USD) is heading higher in what looks to become a rally for this week with a four-day winning streak. Comments overnight from US Treasury Secretary Janet Yellen and the FOMC Minutes only confirmed that the current play with the USD as a haven is still very much valid. Meanwhile, US debt-ceiling talks ended again unresolved but with good progress, according to US House Speaker Kevin McCarthy. 

On the macroeconomic data front, traders can look at the second estimate of US Gross Domestic Product (GDP) numbers for the 1st quarter at 12:30 GMT. Initial Jobless Claims at that same time will show how the employment market is doing.  Throughout the day, it will be worth keeping an eye on 1-year US Treasury Bills (T-bills) as they have been soaring to 7% on Wednesday, with US Credit Default Swaps (CDS) back at the highs. Fed officials are set to speak with Thomas Barkin talking at 13:30 GMT at an Economic Forum and then Susan Collins at 14:30 GMT.

Daily digest: US Dollar the place to be

  • US Treasury Secretary Yellen reiterated that the US government may run out of cash as of June 1st and that some obligations will be unable to be paid after that day. Some current stress in financial markets might substantially escalate further if a deal is not found.
  • Kevin McCarthy concluded the talks on Wednesday with no deal but good progress.
  • FOMC Minutes underlined again that the Fed remains data-dependent, with cuts unlikely while inflation is still unacceptably high.
  • Fitch issued a negative outlook for its AAAu credit rating in the United States. 
  • US Credit Default Swaps (CDS) jumped higher for a third day in a row and are nearing the peak of last Wednesday.
  • US equity futures are mixed with Nvidia (NVDA), keeping the Nasdaq green. 
  • The CME Group FedWatch Tool shows that markets are pricing in a 50% chance of a rate hike for July after hawkish comments from Federal Reserve officials Jim Bullard and Neal Kashkari. Rate cuts have moved down the line to as early as November 2023. 
  • The benchmark 10-year US Treasury bond yield trades at 3.75% and flirts with another two-month high after as it is set to take out the high of Tuesday. 

US Dollar Index Technical Analysis: Hiccup In Washington Pauses Uptrend

The US Dollar Index (DXY) has taken out the 55-day and the 100-day Simple Moving Averages (SMA), respectively, at 102.43 and 102.85 on the upside. The haven status keeps seeing bids for the DXY, with 104 broken early on Thursday, during the European trading session. The next target becomes 105. 

On the upside, 105.74 (200-day SMA) still acts as a long-term price target to hit, as the next upside key level for the US Dollar Index is at 104.00 (psychological, static level), and acts as an intermediary element to cross the open space.

On the downside, 102.85 (100-day SMA) aligns as the first support level to confirm a trend change. 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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