US Dollar Index looks cautious near 99.20 ahead of data

• DXY trades in the vicinity of yearly highs near 99.20.
• Global focus stays on the COVID-19 and impact on economy.
• NY Empire index, NAHB gauge, TIC Flows next on the docket.

The greenback, when tracked by the US Dollar Index (DXY), alternates gains with losses around the area of YTD highs near 99.20 on Tuesday.

US Dollar Index focused on data, coronavirus

The index keeps the topside well and sound for the time being, always supported by headlines surrounding the Chinese COVID-19. Despite efforts by the Chinese government to contain the fast-spreading coronavirus, market participants appear somewhat sceptical, and that transpired into a still steady demand for the safe haven universe.

The dollar looks supported today as well after the PBoC have pumped more stimulus into the domestic economy in order to cushion the negative impact of the coronavirus on the economy. Indeed, the central bank reduced the 1-year Medium-term Lending Facility (MLF) to 3.15% on Monday and expectations are now for an extra cut of the key Loan Prime Rate (MPR) on Thursday.

Away from China and back to the US data universe, the regional manufacturing gauge measured by the NY Empire State index is due on Tuesday along with the NAHB index and TIC Flows. Additionally, it is worth noting that the euro should be under extra pressure in light of the publication of the always-key ZEW survey in both Germany and the broader Euroland.

What to look for around USD

The index has extended the march north to new 2020 highs beyond 99.20, keeping the bid bias unaltered for the time being. Investors are expected to keep looking to the performance of US fundamentals and the broader risk appetite trends for direction as well as any fresh developments from the COVID-19. In the meantime, the outlook on the dollar remains constructive and bolstered by the current “appropriate” monetary stance from the Fed vs. the broad-based dovish view from its G10 peers, the “good shape” of the domestic economy, the buck’s safe haven appeal and its status of “global reserve currency”.

US Dollar Index relevant levels

At the moment, the index is gaining 0.04% at 99.19 and a breakout of 99.24 (2020 high Feb.18) would aim for 99.37 (high Sep.3 2019) and finally 99.67 (2019 high Oct.1). On the flip side, immediate contention emerges at 98.80 (23.6% Fibo retracement of the February rally) seconded by 98.54 (monthly high Nov.29 2019) and then 98.30 (21-day SMA).