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US Dollar Rides High as Debt Debate Continues Amid Fitch Re-Rating. Higher DXY?

US Dollar Rides High as Debt Debate Continues Amid Fitch Re-Rating. Higher DXY?

Daniel McCarthy, Strategist

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US Dollar, Crude Oil, Gold - Talking Points

  • US Dollar found a clear run and resumed strengthening today
  • The debt ceiling issue lingers and the Fed minutes provided some fodder
  • If the debt problem is solved, where will the DXY (USD) index head?

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The US Dollar regained the ascendency overnight with Treasury yields racing north and stocks taking a tumble as the US debt ceiling debate fumbles forward toward June 1st. That is the date that Treasury Secretary Janet Yellen has identified as the day that Treasury may run out of cash.

Demand for the ‘big dollar’ soared with high beta currencies such as the Aussie and Kiwi Dollars’ hit the hardest, but the rally has been broad-based across currency markets.

The South Pacific currencies snapped to 6-month lows with the growth-linked Dollars susceptible to sways in global risk sentiment, which is being eroded by the uncertainty of the US debt ceiling debacle.

Fitch, the credit rating agency, put the US on negative watch late Wednesday as the debt ceiling deadline approaches.

While many pundits believe a resolution will be found before a default occurs, the prospect of it unfolding is providing conjecture for many scenarios. Should it happen, uncertainty appears to be the only certainty.

It should be noted that House Speaker Kevin McCarthy said ‘we’re not going to default’ late Wednesday.

Treasury yields have lifted across the curve with the 1-year note only a handful of basis points away from a 23-year high.

Federal Reserve meeting minutes released yesterday revealed that while there was no consensus for further rate hikes, the notes pointed toward a pause for some time rather than the prospect of a cut.

Interest rate markets are pencilling in a cut for the December Federal Open Market Committee (FOMC) meeting.

Wall Street finished the cash session lower, but Nasdaq futures have rallied through the Asian session after Nvidia, the chip maker, reported much better than anticipated results. They believe that 2Q revenue will be around USD 11 billion, beating estimates of USD 7.2 billion.

APAC equities are mostly in the red with the exception of Japan, with the Nikkei 225 posting solid gains. Data From Japan’s Ministry of Finance showed foreign buying of Japanese stocks nudged higher again for the week ended May 19th to ¥ 867.5 billion.

Crude oil defied the US Dollar advances, posting a 3-week overnight and it has been steady so far in Asian trade. The WTI futures contract is over US$ 74 bbl while the Brent contract is above US$ 78 bbl.

Spot gold is languishing near US$ 1,960 an ounce while silver dipped below US$ 23 an ounce today.

The full economic calendar can be viewed here.

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DXY TECHNICAL ANALYSIS

The DXY index has continued to rally after breaking above a descending trend line 2-weeks ago.

The surge went on to break above resistance near 102 and that area might provide support on a pullback.

On the topside, resistance could be at the 76.4% Fibonacci Retracement level of at the prior peak of 105.10.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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