US Dollar Index looks for direction near 98.30 ahead of PPI

• DXY trades flat around the 98.30 area on Wednesday.
• US 10-year yields approach the 1.75% region.
• Producer Prices next of relevance in the docket.

The Greenback is trading without a clear direction in the middle of the week, taking the US Dollar Index (DXY) to the 98.30/40 area.

US Dollar Index focused on data, risk

The index is extending the sideline trade so far this week as market participants remain wary of the ECB meeting and next week’s key FOMC event.

It is worth recalling that consensus among investors expects the ECB to deliver a package of extra monetary stimulus, including interest rate cuts and further bond purchases. On the Fed side, another 25 bps ‘insurance’ rate cut is almost fully priced in at the meeting next week.

The better tone in the risk-complex remains the name of the game in the global markets so far this week, always sustained by rising hopes of a US-China trade deal. Furthermore, both parties are expected to resume talks early next month in Washington.

Later in the US calendar, Producer Prices for the month of August will be the salient publication today, seconded by MBA Mortgage Applications, Wholesale Inventories and the weekly report by the EIA.

What to look for around USD

DXY remains directionless amidst the increasing cautious tone among investors. At his last speech, Chief Powell reiterated his pledge to support the current expansion, while market participants are still factoring in potential interest rate cuts in the next meetings and a probable recession at some point in 2020. However, the constructive view in DXY still looks firm on the back of the solid labour market, strong consumer confidence and positive GDP readings, while inflation is seeing regaining upside traction in the near term. Also bolstering the buck emerges its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.01% at 98.34 and faces the next hurdle at 99.37 (2019 high Sep.3) seconded by 99.89 (monthly high May 11 2017) and then 100.00 (psychological level). On the other hand, a breach of 98.01 (monthly low Sep.6) would aim for 97.70 (55-day SMA) and finally to 97.17 (low Aug.23).