Trade War Fallout: USD Index Futures In The Red

The escalation of the U.S./China trade war is dominating the headlines of today’s U.S. session open. If you have been following FX Leaders for the past 24 hours or so, then you have read plenty about the fresh $200 billion in tariffs to be tacked on to Chinese exports to the United States. The impact on the Wall Street open has been modest, with the DJIA and S&P 500 trading toward the green. On the flip side of things, December USD Index futures are struggling amid light volume and uncertainty surrounding the current geopolitical situation.

To open the trading week, we talked a bit about the debt markets and potentially increasing yields in U.S. government T-bills. Monday’s 3 and 6-Month T-Bill auctions reinforced this point. Yields grew for both, with the 3-Month T-Bill increasing to 2.125% from 2.110% and the 6-Month to 2.290% from 2.265%.

For the moment, it looks like fixed income securities are becoming attractive to cash-heavy investors. With an intense U.S./China trade war developing and the U.S. Congressional Midterm elections approaching, this is not an unexpected event.

December USD Index Futures

On the daily time frame, a triple-bottom formation is setting up in December USD Index futures. The area around August’s low (98.910) is proving to be valid downside support.

Here are the levels to watch for the remainder of the trading day:

• Resistance(1): Bollinger MP, 94.570
• Resistance(2): Daily SMA, 94.610
• Support(1): August Low, 93.910

Overview: The early U.S. session has not favored the Greenback. Losses against the commodity dollars have led to lagging performance in the AUD/USD and USD/CAD. Other than that, the USD is hanging in there across the majors.

It is early, but it appears the December USD Index may be up for a reversal. Price has rejected support at August’s low — should the current intraday bottom hold (93.880), we may see price test topside resistance in coming sessions.