U.S. Dollar (DXY) Gains Ground Amid Rising Demand For Safe-Haven Assets

Key Insights

• Demand for safe-haven assets increased after the release of the disappointing Industrial Production and Retail Sales reports from China.
• Treasury yields are moving lower, but this move puts no pressure on the American currency. 
• A successful test of the resistance at the 20 EMA will push DXY towards the next significant resistance at 107.

U.S. Dollar Stays Strong At The Start Of The Week

U.S. dollar is moving higher as traders rush to safe-haven assets after the release of the disappointing economic data from China.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has recently managed to get back above the 106 level and is testing the resistance at the 20 EMA at 106.10.

Meanwhile, Treasury yields are moving lower as traders increase purchases of the safe-haven U.S. government bonds. Lower yields put no pressure on the American currency as traders stay focused on safety.

Today, the U.S. released NY Empire State Manufacturing Index report, which indicated that NY Empire State Manufacturing Index declined from 11.1 in July to -31.3 in August, compared to analyst consensus of 5. The disappointing report did not put more pressure on the U.S. dollar.

What’s Next For The U.S. Dollar?

According to FedWatch Tool, market’s expectations have been mostly stable in recent days. Currently, the Fed Watch Tool indicates that there is a 61.5% probability of a 50 bps rate hike at the next Fed meeting.

Judging by the recent action in oil and copper markets, recession fears continue to grow. As a result, the U.S. dollar may get more support due to rising demand for safe-haven assets.

In this scenario, DXY will settle above the 20 EMA and move towards the next significant resistance level at 107. A move above the resistance at 107 will signal that DXY will try to establish a new upside trend after the recent pullback.

For a look at all of today’s economic events, check out our economic calendar.