• DXY stays firm and keeps the 98.00 handle so far.
  • Yields of the US 10-year note climb to daily highs around 2.43%.
  • Fedspeak, housing sector data next of significance in the docket.

The greenback, in terms of the US Dollar Index (DXY), keeps the bid tone unchanged so far this week above the critical barrier at 98.00 the figure.

US Dollar Index focused on trade talks, data

The upbeat mood around the index appears unabated so far, always sustained by increasing uncertainty stemming from US-China trade negotiations (or lack of them) and particularly following the Huawei-gate.

In the meantime, concerns in the geopolitical space keep orbiting around US-Iran tensions and have been also lending support to the buck in past sessions.

Moving forward in the US docket, Existing Home Sales for the month of April are due, while Chicago Fed C.Evans (voter, dovish) will discuss Economy and Monetary Policy and Boston Fed E.Rosengren (voter, centrist) will speak to the Economic Club of New York.

What to look for around USD

With the US-China trade talks mired in the mud for the time being, investors’ attention have now shifted to the Chinese government and the likeliness of intervention in the Yuan, as the currency slowly approaches the psychological 7.00 mark without any progress in the negotiations, at least in the short-term horizon. On another direction, inflation figures remain in the centre of the debate among Fed members despite the solid labour market and healthy fundamentals, preventing the Fed from fully ruling out a rate hike later in the year. The positive outlook on the buck, however, stays unchanged and sustained by overseas weakness, its safe haven appeal, favourable yield spreads vs. the Fed’s G10 peers and the status of global reserve currency.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.08% at 98.01 and faces the next up barrier at 98.10 (high May 3) seconded by 98.32 (2019 high Apr.25) and finally 98.97 (78.6% Fibo of the 2017-2018 drop). On the other hand, a break below 97.70 (21-day SMA) would open the door for 97.23 (55-day SMA) and then 97.03 (low May 13).

Iraq's Oil Minister Jabar al-Luaibi crossed the wires in the last minutes saying that regional tensions continued to pose challenges to oil markets. "The JMMC (Joint OPEC-Non-OPEC Ministerial Monitoring Committee) must monitor markets to pave way for a new deal to stabilise markets and support prices at OPEC meet in Vienna," the minister added, as reported by Reuters.

• After yesterday's intraday pullback and a subsequent rebound from 100-hour EMA, the USD/JPY pair regained positive traction on Tuesday and climbed to two-week tops in the last hour.

• A sustained move beyond 110.25 horizontal resistance was seen as a key trigger for intraday bullish traders amid improving risk sentiment and behind the latest leg of a sudden pickup.

Bullish technical indicators on hourly charts remained supportive of the intraday positive move. However, oscillators on the daily chart are yet to catch up with the ongoing recovery and might turn out to be the only factor keeping a lid on any runaway rally.

Hence, any subsequent up-move seems more likely to confront some stiff resistance near the 110.80-85 area, which if cleared decisively would set the stage for a further appreciating move towards the very important 200-day SMA, currently near the 111.45 region.

On the flip side, the 110.25 level, closely followed by the key 110.00 psychological mark – also coinciding with 100-hour EMA, remain immediate support to defend, below which the pair might turn vulnerable to head back towards challenging the 109.00 handle.

USD/JPY 1-hourly chart

British Prime Minister Theresa May's spokesman recently announced that the PM will be setting out the details of the new Brexit offer in a speech today at 1500 GMT.

Key quotes (via Reuters)

  • Cabinet discussed new deal on Brexit to be presented in parliament.
  • New deal includes alternative arrangements, workers rights, environmental protections and assurances on integrity of UK in event of backstop.
  • PM told ministers the WAB is the vehicle to get UK out of the EU and it is vital to find way to get it over the line.
  • Cabinet meeting was characterised by shared determination to pass the WAB.
  • There has been discussion about parliament having a role in determining future relationship with EU.
  • We haven’t set out a timetable for indicative votes so far.
  • Asked about whether a second referendum was raised in cabinet, says they discussed a whole range of issues.
  • No deal remains a plausible outcome and work is ongoing.
  • To get a new deal through parliament it is clear that it will have to contain significant new aspects.

Greg Gibbs, analyst at Amplifying Global FX Capital, suggests that the market should be bracing for retaliatory action by the Chinese government against US companies selling products and services in China.

Key Quotes

“A number of major US companies such as Apple and Caterpillar are experiencing weaker share prices on fears that China will use its persuasion or direct regulatory power to damage sales by these companies in China (and elsewhere).”

“The Huawei action suggests that it will be harder for the US and China to resume constructive talks on a trade deal. This suggests that punitive tariffs will remain in place, and indeed may be increased further; the US administration has said it plans to extend 25% tariffs from 200bn of Chinese goods to all Chinese imports of around $500bn per year.”

“There are currently no plans to continue the trade negotiations. The delay in setting a timetable suggests there is a stalemate.”

“The US administration appears to be digging in on its battle with China and may be looking for support from its allies, or at least wary of alienating them further at this time.”

“There is a long and wide tail risk associated with the Huawei ban, and we need to be wary of a significant fallout to global risk assets.”

Atlanta Fed President Raphael Bostic crossed the wires in the last minutes arguing that the inflation in the U.S. was not "so far away" from the Federal Reserve's target to unanchor expectations.

Key quotes (via Reuters)

  • Financial stability a risk that is "always on the list" but not risen to crisis levels yet.
  • Lack of wage pressure suggests natural rate of unemployment may be lower than previously thought.

The opposition Labour Party's spokesman McDonnell said that he didn't think Labour lawmakers would back British Prime Minister Theresa May's Brexit offer. "Regardless of what the PM offers on Brexit, there is an overriding problem with the longer term stability of the Conservative Party," the spokesman added and stated that he didn't see the Labour Party abstaining in the vote.

While markets are waiting for the PM to deliver a statement on the new Brexit deal, the GBP/USD pair is trading at its lowest level since early January a little below the 1.27 mark.

• Gold finally broke down of its consolidative trading range – forming a bearish continuation rectangle chart pattern and tumbled to fresh two-week lows.

• A sustained break through the pattern support near the $1274 horizontal zone was seen as a key trigger behind the latest leg of a sudden drop in the last hour.

The occurrence of death-cross on hourly charts – wherein 50-period SMA crosses below 200-period SMA, add credence to the bearish set-up. However, technical indicators on the 4-hourly chart remained in the oversold territory and might turn out to be the only factors holding traders from placing aggressive bearish bets.

Meanwhile, oscillators on the daily chart maintained their bearish bias and are still far from being in the oversold zone, clearly suggesting that any attempted bounce might still be seen as a selling opportunity near the $1278-79 region for an eventual slide back towards monthly swing lows support near the $1266 region.

Gold 1-hourly chart