US Dollar (DXY) Opens The Week On A Positive Note

By Nick Cawley of DailyFX

Monday, November 21, 2022 9:32 AM EST

The US dollar basket (DXY) is pushing higher in early European trade, boosted by news of the first covid death in China for six months and supportive short-dated US Treasury yields. The dollar basket is also getting a push higher after comments from ECB board member Philip Lane suggested that a 75bp rate hike in December is becoming increasingly unlikely. In an interview with MNI, the ECB’s chief economist said that ‘one platform for considering a very large rate hike, such as 75 basis points’ is no longer there’, while he added that ‘ the more we’ve already done, the less we need to do’. The sell-off in the Euro has pushed the US dollar basket higher nearly one point higher. The Euro accounts for 57.6% of the DXY weighting.

Short-dated US Bond yields continue to creep higher, supporting the US dollar along the way. The inversion between the UST 2s and 10s is now at 70bps, a worrying recessionary signal. If you go shorter, the UST 1-yr/10-year inversion is currently 95 basis points. The US bond market is clearly saying that rate cuts will be needed later next year.

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China is battling a resurgence in Covid-19 cases, just days after relaxing some measures. According to Chinese Health authorities, 24k new cases were detected on Sunday.

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The US dollar index is pressing towards 108 after having traded at a multi-month low of 105.34 last Tuesday. The brief entry and exit into an old area of support kept the DXY away from the 200-day simple moving average (SMA), an indicator that has not been tagged since mid-June last year. The prior zone of resistance, starting at 109.31, should hold the current move, leaving the DXY in a trading zone for the next few days at least.