DXY inter-markets: buy the dips?

The USD Index, which measures the greenback vs. its main competitors, is intensifying its rejection from Monday’s 4-month tops in the 97.60 area, so far finding quite decent support near 96.20 (today’s lows).

Disappointment following the FOMC meeting on Wednesday plus the renewed buying interest around the Japanese yen has collaborated with the steep decline of the index, although the extent and sustainability of the current drop remains challenging.

Recent solid results from the US docket have been supporting USD since the stellar Non-farm Payrolls in June (287K), collaborating as well with a pick up in Fed Fund future prices, which now see the probability of a rate hike in December at nearly 40%, from marginal values just weeks ago and according to CME Group’s FedWatch tool.

US yields, especially in the short end of the curve (2-year, 5-year), keep navigating the upper end of the recent range, while volatility tracked by VIX remains in depressed levels.

All in all, it appears that the ongoing USD-softness lacks of fundamental sustainability, while a positive surprise from Q2 GDP figures and Consumer Sentiment (Friday) carry the potential of igniting another up leg with the interim target at 97.62 (Monday’s peak) followed by 98.59 (high March 2).