US Dollar Index flirts with 97.00 ahead of ADP

• DXY pauses its advance near the 97.00 handle.
• US yields dropped following the Iran attack to US military base.
• ADP report, EIA, FOMC’s Brainard next on the docket.

The US Dollar Index (DXY), which gauges the greenback vs. a basket of its main competitors, is struggling for direction in the 97.00 region after the closing bell in the Asian markets.

US Dollar Index focused on geopolitics, data

The index is trading close to weekly tops in levels just above 97.00 the figure on Wednesday amidst declining yields and rising cautiousness following the latest events in the Middle East.

Indeed, US yields dropped once again in the aftermath of the Iranian attack to a US military base in Iraq on Tuesday. Yields of the key US 10-year note are now hovering around the 1.78%, down from weekly highs in the proximity of 1.85%.

The dollar advanced on Tuesday after tensions on the US-Iran front have ebbed somewhat, while above-estimates results from the US trade balance and Factory Orders also collaborated with the move up. In addition, the key ISM Non-Manufacturing surprised to the upside in December, posting decent readings in all of its components.

In the docket, the ADP employment report will take centre stage ahead of the critical Non-farm Payrolls due on Friday. in addition, the EIA will publish its weekly report on US crude oil stockpiles and FOMC’s L.Brainard (permanent voter, dovish) will speak on the Community Reinvestment Act.

What to look for around USD

The index has rebounded from 5-month lows near 96.30 in past sessions, although it has so far failed to extend the recovery further north of the 97.00 barrier on a sustainable basis. In the meantime, geopolitics – with US and Iran in centre stage – continue to dominate the headlines seconded by the imminent sign of the ‘Phase One’ deal with China. In spite of the recent weakness, the constructive view on the dollar remains unaltered and stays underpinned by the so far ‘wait-and-see’ stance from the Fed vs. the broad-based dovish view from its G10 peers, the dollar’s safe haven appeal and its status of ‘global reserve currency’

US Dollar Index relevant levels

At the moment, the index is losing 0.03% at 96.94 and it now faces immediate contention at 96.36 (monthly low Dec.31) seconded by 96.04 (50% Fibo of the 2017-2018 drop) and then 95.84 (monthly low Jun.25 2019). On the other hand, a surpass of 97.11 (21-day SMA) would open the door to 97.69 (200-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop).