US Dollar Stays Strong on Higher Volatility as Risk Aversion Eases. New Highs Next?

US Dollar, DXY Index, USD, China, VIX, MOVE, G-10 FX, US CPI – Talking Points

  • The US Dollar paused in its march north today, but risks remain
  • APAC equities, commodities and currency markets also took a breather
  • If US CPI data surprises, will the USD get another kick along?

The US Dollar continues to hold the high ground after a number of Federal Reserve speakers spoke overnight.

It was Cleveland Fed President Loretta Mester that seemed to grab the most attention. She favours 50 basis-point (bp) hikes for now but didn’t rule out a 75 bp lift if inflation remains persistent in the second half of this year.

This seemed to lift the 1 and 2-year Treasury yields a couple of bp, but 5-years and beyond saw their yields slip around 3-5 bp.

In a fairly quiet Asian session for currencies, the Aussie and Kiwi saw small gains.

Australia’s ASX 200 equity index was down slightly but the rest of the main APAC equity indices were in the green. Most notably, China’s CSI 300 index was up over 2% after inflation data there surprised to the upside.

Chinese CPI came in at 2.1% year-over-year to the end of April against 1.8% forecast and March’s print of 1.5%. PPI came in at 8.0%, instead of 7.8% expected and 8.3% previously. USD/CNY has eased back from 18-month highs to be trading near 6.7200.

Crude oil saw modest gains today with the WTI futures contract near US$ 101.50 bbl and the Brent contract slightly above US$ 104 bbl. Gold is steady around US$ 1,840 an ounce.

Although markets over the last few sessions appear to have calmed to a degree, measures of volatility across US treasuries (MOVE index) and G-10 currencies (JPMG10FX index) are at their highest since the pandemic began.

The volatility on the S&P 500 (VIX index) is elevated but below the peaks seen over the last few years.

Ahead, the highlight of central bank speakers will be ECB President Christine Lagarde. Later on, the market will be paying attention to Atlanta Fed President Raphael Bostic, known for his hawkish views. Then, after German inflation data, the market focus will be on the US CPI number.

The full economic calendar can be viewed here.

DXY INDEX (USD) Technical Analysis

The US Dollar index (DXY) is stalling after making a 20-year high at the start of this week,

A bullish triple moving average (TMA) formation requires the price to be above the short term simple moving averages (SMA), the latter to be above the medium term SMA and the medium term SMA to be above the long term SMA. All SMAs also need to have a positive gradient.

Looking at the 10-, 55- and 100-day SMAs, the criteria TMA have been met and further bullish momentum may evolve.

Resistance could be at the recent high of 104.19 while nearby support could be at the prior low of 102.35.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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