US Dollar Eyeing Best 2-Week Performance Since September, Eyes on Resistance

USD, DXY, Debt Ceiling Deal Bets, Unemployment Claims – Brief:

• U.S. dollar On track for its best two-week gain since September
• Bets on debt ceiling deals, unemployment claims data boosted demand
• Focus on the upside DXY after removing the 100 day simple moving average

The US dollar is back in the spotlight as Treasury yields rise

The US dollar surged higher on Thursday, extending its recent streak of gains. Over the past two weeks, the DXY dollar index has gained about 2.2%. This is the best 10-day performance since September 2022. Let’s take a closer look at the past 24 hours and what to expect at the end of the week.

Unsurprisingly, the two-year Treasury yield has risen more than 8.5% over the past two weeks, marking the best performance over this period since September 2022 as well. The rise in bond yields in the near term can be seen as a sign of increased confidence in the US economy.

During a Wall Street session Thursday, reports crossed that members of Congress on Capitol Hill are making plans for a short-term vote on a bipartisan deal to raise the debt ceiling, opening the door to avoiding default.

Meanwhile, timely data on the labor market showed signs of improvement. Initial jobless claims unexpectedly fell to 242K last week. Economists were looking for an increase of 251K. However, both figures are lower than the previous print of +264K.

As a result, financial markets continued to price in near-term interest rate cuts from the Federal Reserve amid a still tight labor market and flat core inflation. Since last Wednesday, nearly two rate cuts have been rescinded in expectations within one year.

This is most likely the reason for the rise in the US dollar. As the remaining 24 hours wind down, eyes turn to Chairman Jerome Powell and former Chairman Bernanke’s speech during the Policy Committee. If the dollar continues to moderate bets for a near-term rate cut from the Federal Reserve, the greenback could add momentum to its impressive rally.

Technical analysis of the US dollar

On the daily chart, DXY has broken above the 100-day simple moving average (SMA). This revealed the March high of 105.88. Given the confirmation of the uptrend, this could open doors for an extension higher in the near term. The main support is in the range below between 100.82 and 101.79.

DXY daily chart

Chart created in TradingView

– By Daniel Dubrovsky, Chief Strategist for DailyFX.com