Where we are: The DXY is holding steady near recent highs at 99.30 in pre-market trading, consolidating after yesterday’s mixed session. The index remains within striking distance of the six-week high printed earlier in the week, supported by a relatively hawkish Fed narrative. We saw a modest overnight range, contained by the key resistance at 99.40 and support at 99.15, with the index essentially flat versus yesterday’s NY close.
What’s driving it: Dollar strength is primarily anchored in the persistent uncertainty surrounding the Fed’s rate path. Despite dovish hopes lingering in some corners, the FOMC minutes suggest a willingness to consider further tightening if inflation proves stubborn. This hawkish tilt, coupled with a resilient US economy, continues to lend support to the Greenback. A fresh catalyst today will be the revised UoM Consumer Sentiment data at 10:00 ET, which bears watching for any hints of shifting inflation expectations or consumer confidence.
- US 10-year yields have softened slightly, down 10bp to 4.57%, but remain at levels that provide underlying support for the Dollar.
- The CFTC data shows a crowded net long positioning in the Dollar, at the 85th percentile, suggesting a squeeze risk on any dovish surprises.
- Warsh’s takeover at the Fed introduces an element of uncertainty.
NY session focus: Today’s session hinges on the 10:00 ET release of the revised UoM Consumer Sentiment, with particular attention paid to the inflation expectations component. A strong reading could fuel further Dollar gains, targeting a break above 99.40 and potentially testing the 99.60 level. Conversely, a weaker-than-expected print could trigger a short squeeze, pushing the DXY back towards 99.00. The trade that’s working remains fading dips in the Dollar, while the trade at risk is chasing the upside breakout. The pain trade for the Buck is a surprisingly dovish shift in Fed rhetoric sparked by weakening sentiment.