DXY inter-markets: buy the dips?

The greenback, when tracked by the US Dollar Index, is retreating for the second consecutive session this week and keeps well and sound the leg lower from recent highs near 96.30.

However, the index appears to be well supported in the mid-95.00 despite the context of persistent offered bias around USD.

Supporting the greenback, yields in the US money markets are navigating a ‘sea of green’ across the curve at the time of writing, volatility tracked by VIX drops to fresh lows and Fed Fund futures prices have climbed to the upper end of the range, challenging recent multi-day tops.

USD remains propped up by expectations of a rate hike by the Federal Reserve at some point in the next months, with the probability of higher rates this month at 21% and just above 41% for the month of December. The recent miss from August’s Payrolls and the subsequent (unusual?) climb in USD seemed to have proved that investors continue to support the scenario of higher rates in the US economy in the next months, adding to USD reticence.

Regarding positioning and according to the latest CFTC report, speculative net longs in USD have been scaled back to 3-week lows, although Open Interest has deflated from previous week, opening the door for a probable change in speculators’ sentimnt.

In DXY, the area of 95.40/20 emerges as the initial support, where are located the 20-/100-day same and the 61.8% retracement of the July-August drop. In case this area is cleared, the 94.80/65 band – the 78.6% retracement of the July-August drop and the 4-month support line – will come next. On the upside, the 96.30 region aligns as the initial hurdle, where sit the 200-day sma, recent double-tops and the 38.2% retracement of the July-August drop.