US Dollar locks in weekly gains backed by higher US yields

• The US Dollar trades mixed on Friday with some profit taking after another ferocious week.
• The focal point to end the week will be the PMI numbers for the US. 
• The US Dollar Index resides near new six-month high 

The US Dollar (USD) had another strong day on Thursday, booking gains against nearly every major G20 currency. Backed by higher US yields, the Greenback  advances in an environment where the rate differential seems to be the driving factor to determine which currency weakens and which appreciates. With the US 10-year yield hitting 4.51%, breaking above the high of October 2007, it looks like King Dollar is affirming its earned title.

There might be some tempering to this party depending on the US Purchasing Managers Index (PMI) data  released by S&P Global later Friday. The data will provide fresh insight on the state of the country’s key manufacturing and services in September, after August data showed that  manufacturing activity dropped into contraction and services recorded a very mild expansion.. Should both numbers fall fully into contraction, expect to see some unwinds from those US Dollar long positions toward the weekend. 

Daily digest: US Dollar seeks confirmation from PMIs

• Strikes are continuing in the major three car procedures with no positive headlines to report ahead of this Friday’s deadline. 
• No breakthrough to report neither on the looming US Government shutdown. 
• Traders will be on edge near 13:45 GMT for the S&P Global Purchasing Managers Index (PMI) numbers: the Manufacturing PMI is expected to head from 47.9 to 48, while the Services PMI is anticipated to edge up from 50.5 to 50.6. The Composite PMI, which tracks performance of both manufacturing and services, is also seen little changed around the previous 50.2 reading. 
• Baker Hughes US Oil Rig Count data will come at 17:00 GMT. Previous number was 515. Energy remains a weak spot in the inflation bag that the Fed can not control in order to get inflation back to 2%. With the Baker Hughes Rig Count numbers remaining very low in the past few months, an energy deficit could linger in the US during the winter, pushing energy prices further up. 
• Big dispersion in the equity markets: Japanese Nikkei and Topix reside in the red, down 0.50%. In China, both the Hang Seng and the CSI 300 indexes are up over 1.50%. In Europe, equities are opening flat while US futures are pointing to the green . 
• The CME Group FedWatch Tool shows that markets are pricing in a 73.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. The last rate hike is expected for either December or January.
• The benchmark 10-year US Treasury yield traded at one point at 4.51%, the highest level since October 2007. It later fell back to 4.48%. The rate differential story remains the main driver in the forex space. 

US Dollar Index technical analysis: getting tired

The US Dollar looks set to close this week with another positive print in the US Dollar index (DXY). King Dollar has yet again confirmed its status, though there looks to be some fatigue creeping in the price action. This afternoon’s PMI numbers will be crucial to either see a final attempt for a new yearly high or rather a drop back to 105.00 or lower. 

The US Dollar Index (DXY) goes sideways after reaching 105.68 on Thursday. Should the DXY close above the yearly high near 105.88, expect the US Dollar to follow on with more bullish moves in the medium term. US yields will remain crucial to support current levels in the DXY. 

On the downside, the 104.44 level seen on August 25 kept the Index supported on Monday, halting the DXY from selling off any further. Should the uptick that started on September 12 reverse and 104.44 give way, a substantial downturn could take place to 103.04, where the 200-day Simple Moving Average (SMA) comes into play for support.