Citi discusses the USD Index 'DXY' technical outlook and highlights the importance of the the 98.48 resistance for the USD direction over the coming weeks.
"Markets continue to watch 98.48 resistance on the USD Index (DXY) which if broken, could open up a return to the August highs at 98.93.
However, technical indicators also point out that the monthly chart is exhibiting potential momentum divergence similar to that seen in January 2017 (triple monthly momentum divergence.) IF this were to complete, it would suggest the danger that a top is in for the DXY. This indicator has been very successful in signaling turns in the past," Citi notes.
"The fundamental key driver of USD direction though remains US – China trade talks. A possible trade deal in September would likely signal renewed weakness in USD. Absent that, we could see an elevated USD for the remainder of the year even if the Fed embarks on a gradual rate cut exercise in line with the Citi analysts view," Citi adds.