- The DXY index moves to new yearly highs in the 93.60 / 65 region.
- High volatility and stable returns underpin risk-off sentiment.
- The Fed’s Kaplan will speak later in the day.
The US dollar DXY index, which measures the strength of the dollar against a basket of the main currencies, maintains its positive tone for another day and moves into 2021 highs around 93.60 during the European session on Friday.
DXY index strengthens on risk aversion and Fed tightening speculation
The DXY index has risen steadily since Monday and now rises to levels last seen in November 2020, above the level of 93.60, supported by nervousness around the coronavirus, expectations of an adjustment by the Fed and a spike in volatility.
The prevailing risk sentiment comes after new concerns about COVID stemming mainly from the Delta variant progress and its potential effects on growth prospects. This preference for safe havens has kept demand for the dollar in recent weeks alongside Fed intentions to begin cutting the bond buying program sometime towards the end of the year.
In the same way, the volatility expressed by the VIX index (aka “the panic index”) rose to multi-day highs above the 20.0 level, extending the weekly bounce from as low as the 15.0 area seen at the end of last week.
Also supporting the improvement in momentum in the USD appears the rebound in real US 10-year yields since early August, from around -1.17% to around -1.0%.
There is no publication of US data, except for a speech by R. Kaplan of the Atlanta Fed. On Thursday, weekly jobless claims and the Philadelphia Fed index disappointed expectations, while the leading index followed by the Conference Board rose.
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is gaining 0.03% on the day, trading at 93.59. A break above 93.62 (August 20 high), would open the door to 94.00 (round level) and 94.30 (November 4, 2020 high). On the other hand, the next support is at 92.47 (August 13 low), followed by 92.37 (50-day SMA) and finally 91.78 (July 30 low).
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