DXY inter-markets: scope for a revisit of 94.00

The US Dollar Index, which gauges the buck vs. its main competitors, has resumed its leg lower this week, leaving behind Friday’s tepid – eventually unsuccessful - attempt to regain the 95.00 handle on hawkish Fedspeak.

In the meantime, US money markets are showing mixed performances across the yield curve, reflecting the lack of conviction around the greenback. This view is sustained further when we look at Fed Funds futures prices, which are navigating the lower bound of the range as hopes of a September rate hike by the Fed seems to have fizzled out.

According to CME Group’s FedWatch tool, the probability of the Fed announcing higher rates next month is at 15%, nearly 21% in November and just below 40% in December.

Volatility has dropped to session lows, supporting the case for risk-on sentiment despite the current marginal drop in the S&P500 futures, which remains above 2,180 pts, at shouting distance from all-time highs.

A deeper pullback in USD will open the door for a re-visit of the 94.00 neighbourhood, last week’s low and the 78.6% retracement of the June-July up move. A breakdown of this area could expose 93.03, June’s low.